Diversification across characteristics

Erik Hjalmarsson

No 986, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: I study long-short portfolio strategies formed on seven different stock characteristics representing various measures of past returns, value, and size. Each individual characteristic results in a profitable portfolio strategy, but these single-characteristic strategies are all dominated by a diversified strategy that places equal weight on each of the single-characteristic strategies. The benefits of diversifying across characteristic-based long-short strategies are substantial and can be attributed to the mostly low, and sometimes substantially negative, correlation between the returns on the single-characteristic strategies.

Keywords: Portfolio management; Stock - Prices (search for similar items in EconPapers)
Date: 2009
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