VGSF - WU Vienna - LC

Robert Korajczyk, Northwestern University

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Robert Kora­jczyk from North­west­ern Uni­versity to present his re­search pa­per.
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Ar­bit­rage Port­fo­lios

We pro­pose new meth­od­o­logy to es­tim­ate ar­bit­rage port­fo­lios by util­iz­ing in­form­a­tion con­tained in firm char­ac­ter­ist­ics for both ab­nor­mal re­turns and factor load­ings. The meth­od­o­logy gives max­imal weight to risk-­based in­ter­pret­a­tions of char­ac­ter­ist­ics' pre­dict­ive power be­fore any at­tri­bu­tion to ab­nor­mal re­turns. We ap­ply the meth­od­o­logy in sim­u­lated factor econom­ies and to a large panel of U.S. stock re­turns from 1965{2014. The meth­od­o­logy works well in sim­u­la­tion and when ap­plied to U.S. stocks. Em­pir­ic­ally, we find the ar­bit­rage port­fo­lio has (stat­ist­ic­ally and eco­nom­ic­ally) sig­ni­fic­ant al­phas re­l­at­ive to several pop­ular as­set pri­cing mod­els and an­nu­al­ized Sharpe ra­tios ranging from 1.35 to 1.75.

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