A Note on the Sources of Portfolio Returns: Underlying Stock Returns and the Excess Growth Rate

Jason T. Greene and David Rakowski ()

Critical Finance Review, 2015, vol. 4, issue 1, 117-138

Abstract: A portfolio’s compound return over time is not simply the weighted sum of the compound returns of its underlying stocks. Instead, it is due to (a) the underlying constituent stocks’ compound returns, and (b) a component induced by constituent covariances. This can be important. The average smallest-cap decile portfolio outperformed its largest-cap counterpart by 44 basis points per month (bps/mo), but the smallest-cap decile stock constituents on average underperformed their largest-cap counterparts by 74 bps/mo. Thus, the “size effect" is not a small-firm effect, but a small-firm portfolio effect. In contrast, our high-minus-low (HML) and up-minus-down (UMD) portfolios outperformed because their individual stock constituents outperformed on average. Value and momentum are simultaneously portfolio and individual stock effects.

Keywords: Portfolio Returns; Portfolio Growth Rates; Size Effect; Long-Term Returns (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://dx.doi.org/10.1561/104.00000025 (application/xml)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:now:jnlcfr:104.00000025

Access Statistics for this article

More articles in Critical Finance Review from now publishers
Bibliographic data for series maintained by Lucy Wiseman ().