Factor risk premiums and invested capital: calculations with stochastic discount factors

Andrew Ang, Ked Hogan () and Sara Shores ()
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Ked Hogan: BlackRock Inc.
Sara Shores: BlackRock Inc.

Journal of Asset Management, 2018, vol. 19, issue 3, No 1, 145-155

Abstract: Abstract Factor portfolios with value, size, momentum, profitability, and low volatility stocks have historically exhibited high returns after adjusting for market risk. As the weights of these portfolios increase in the stochastic discount factor, the excess returns of these factor strategies should decrease. We compare weights of these factor portfolios in the efficient set relative to which there are no factor risk premiums with market capitalization weights.

Keywords: Pricing kernel; Stochastic discount factor; Factor premium; Factor strategies; Capacity (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1057/s41260-017-0069-0

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