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Time-varying cross-sectional stock portfolio returns analysis
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School of Business |
Bachelor's thesis
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en
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30
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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.