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The Journal of Portfolio Management

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Article

Pure Factor Portfolios and Multivariate
Regression Analysis

Roger Clarke, Harindra de Silva and Steven Thorley
The Journal of Portfolio Management Spring 2017, 43 (3) 16-31; DOI: https://doi.org/10.3905/jpm.2017.43.3.016
Roger Clarke
is the president of Ensign Peak Advisors in Salt Lake City, UT.
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  • For correspondence: roger.clarke@ensignpeak.org
Harindra de Silva
is the president of Analytic Investors in Los Angeles, CA.
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  • For correspondence: hdesilva@aninvestor.com
Steven Thorley
is the H. Taylor Peery professor of Finance at Brigham Young University in Provo, UT.
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  • For correspondence: steven.thorley@byu.edu
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Abstract

Linking factor portfolio construction to cross-sectional regressions of security returns on standardized factor exposures leads to a transparent and investable perspective on factor performance. Under capitalization weighting, multivariate regression coefficients translate to portfolio returns that are benchmark relative and cleared of secondary factor exposures. The methodological contributions in this article are illustrated using a 50-year data set of 1,000 large U.S. stocks and five factor exposures: value, momentum, small size, low beta, and profitability. Using two case studies in factor portfolio analysis, the authors focus on cheapness, as measured by earnings yield, and interest rate risk, as measured by sensitivity to the 10-year Treasury bond return.

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The Journal of Portfolio Management: 43 (3)
The Journal of Portfolio Management
Vol. 43, Issue 3
Spring 2017
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Pure Factor Portfolios and Multivariate
Regression Analysis
Roger Clarke, Harindra de Silva, Steven Thorley
The Journal of Portfolio Management Apr 2017, 43 (3) 16-31; DOI: 10.3905/jpm.2017.43.3.016

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Pure Factor Portfolios and Multivariate
Regression Analysis
Roger Clarke, Harindra de Silva, Steven Thorley
The Journal of Portfolio Management Apr 2017, 43 (3) 16-31; DOI: 10.3905/jpm.2017.43.3.016
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  • Article
    • Abstract
    • FACTOR PORTFOLIO CONSTRUCTION
    • HISTORICAL PERFORMANCE OF PRIMARY FACTOR PORTFOLIOS
    • TIME DYNAMICS OF FACTOR CORRELATIONS AND EXPOSURES
    • POINT-IN-TIME PORTFOLIO COMPOSITION AND EXPOSURES
    • HISTORICAL PERFORMANCE OF PURE FACTOR PORTFOLIOS
    • CONCLUSIONS
    • REFERENCES
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Show more Article
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