NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Positive Portfolio Factors

Stephen J. Brown, William N. Goetzmann, Mark Grinblatt

NBER Working Paper No. 6412
Issued in February 1998
NBER Program(s):   AP

We use an iterative relocation algorithm to identify factors in common stock returns. The benefit of the approach is that factors are portfolios of assets with non-negative weights. As a result, they are readily interpreted in terms of their characteristics of the underlying securities. The positive portfolio factors have comparatively high explanatory power in sample and out-of-sample. We find evidence of a size factor and factors identified with certain industries. Factors extracted from the mutual fund universe perform marginally better than factors from the universe of equities.

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Document Object Identifier (DOI): 10.3386/w6412

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