Measuring the relative return contribution of risk factors

Johan Knif (), James W. Kolari (), Gregory Koutmos () and Seppo Pynnönen ()
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Johan Knif: Hanken School of Economics
James W. Kolari: Texas A&M University
Gregory Koutmos: Fairfield University
Seppo Pynnönen: University of Vaasa

Journal of Asset Management, 2019, vol. 20, issue 4, No 2, 263-272

Abstract: Abstract This paper proposes a simple method to measure and compare the average relative return contribution of proposed risk factors. The method is applied to six common risk factors, including market, size, value, momentum, profitability, and investment, using 49 U.S. industry portfolios in the period 1969–2014. We find that the average relative return contributions of the market factor and mispricing alpha are highest in all models and sample periods. When multifactors are included, their main effect is to reduce the contribution of the average market factor return with some reduction in the contribution of mispricing alpha.

Keywords: Risk factor models; CAPM; Average relative absolute return contribution (ARARC) (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/s41260-019-00121-9

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