• norsk
    • English
  • English 
    • norsk
    • English
  • Login
View Item 
  •   Home
  • Norges Handelshøyskole
  • Thesis
  • Master Thesis
  • View Item
  •   Home
  • Norges Handelshøyskole
  • Thesis
  • Master Thesis
  • View Item
JavaScript is disabled for your browser. Some features of this site may not work without it.

Will a factor-based Markowitz implementation beat the market?

Bjørnson, Anders Bredenbekk; Gjerde, Fredrik Snarvold
Master thesis
Thumbnail
View/Open
masterthesis.PDF (390.9Kb)
URI
http://hdl.handle.net/11250/2487960
Date
2017
Metadata
Show full item record
Collections
  • Master Thesis [4657]
Abstract
In this thesis, we look at whether a factor-based implementation of the Markowitz (1952) framework

beats the market. Different sets of factors are used in the framework, to see whether this

choice affects the results. We find the optimal portfolio by using past data to invest in the future.

This is implemented, with annual rebalancing, on US stock data from 1964 to 2016. Portfolios

are formed on daily, weekly and monthly data to see whether the frequency of the return

measurement gives different results.

Our framework begins by running factor regressions on each stock. These coefficients are used

in combination with the expected returns and the covariance matrix of the factors to calculate

the expected returns and covariance matrix of the stocks. Performance is evaluated by looking

at the mean one/four-year ex-post Sharpe- and appraisal ratios, as well as the crash-risk of our

portfolios.

Based upon the mean one-year Sharpe ratios, our factor-based portfolios formed on daily data

all significantly beat the market, while there is no such significance for the portfolios formed

on weekly or monthly data. However, all of our factor-based portfolios have a statistically

significant one/four-year appraisal ratio when using the market as our benchmark. We also find

that there does not seem to be a higher crash-risk for our portfolios than the market.

Our portfolios, when formed on the same measurement frequency, perform remarkably similar.

This shows that our framework is an approximation of the standard Markowitz (1952) theory,

rather than a factor-based investment strategy. The only thing not accounted for in our framework

is the stock covariance explained by the residuals left in the regressions. We also find that

this is a more stable implementation of the Markowitz theory, avoiding non-positive definite

covariance matrices.

Contact Us | Send Feedback

Privacy policy
DSpace software copyright © 2002-2019  DuraSpace

Service from  Unit
 

 

Browse

ArchiveCommunities & CollectionsBy Issue DateAuthorsTitlesSubjectsDocument TypesJournalsThis CollectionBy Issue DateAuthorsTitlesSubjectsDocument TypesJournals

My Account

Login

Statistics

View Usage Statistics

Contact Us | Send Feedback

Privacy policy
DSpace software copyright © 2002-2019  DuraSpace

Service from  Unit