Time-Varying Cross-Sectional Stock Portfolio Returns Analysis

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bachelor_Harju_Joose_2019.pdf (1.26 MB)

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School of Business | Bachelor's thesis
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Date

2019

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Rahoitus

Language

en

Pages

30

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Abstract

I study the time-varying nature of stock portfolio returns in five market-beta sorted portfolios. By essentially regressing a nine-factor ordinary least squares (OLS) model on the portfolios, I uncovered differences between the underlying components of the five market-beta sorted portfolios. Subsequently, by performing a rolling-window regression on a constructed long-short portfolio, I exposed the time-varying nature of the underlying components driving portfolio returns. Uncovering the time-varying decomposition of the underlying components driving portfolio returns increases the potential predictability of the portfolio returns in the future. Eventually, increased predictability of portfolio returns could increase investors’ ability to profit from market timing as well as allow them to hedge more efficiently.

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Thesis advisor

Shin, Sean

Keywords

CAPM, Fama-French three factor model, Fama-French five factor model, momentum factor, credit spread, dividend yield, term spread, heteroscedasticity

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https://urn.fi/URN:NBN:fi:aalto-201912296755

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[kand] Kauppakorkeakoulu / BIZ (Open Access)