Tag: finance
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What is the basis of “Basis Portfolios”?
Seventy years ago, Harry Markowitz gave us the recipe for the optimal portfolio: combine assets to maximize expected return for a given level of risk. In theory, it’s beautiful. In practice, it has been nearly impossible to implement. Why? Because the ingredients—expected returns and the covariance matrix of individual stocks—are not observable and are notoriously…
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What is the essence of the “Essence of the Cross Section?”
This paper tackles a simple but difficult question: with so many predictors for stock returns, how do we know which ones truly matter? Traditionally, the way to test a signal is straightforward: sort stocks into portfolios based on that signal and see how average returns differ. Sort on momentum? Momentum looks important. Sort on size?…
Sina Seyfi 