International Finance Discussion Papers (IFDP)
December 2009
Diversification Across Characteristics
Erik Hjalmarsson
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.
Full paper (screen reader version)Keywords: Diversification, portfolio choice, stock characteristics
PDF: Full Paper
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