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Portfolio Construction for Tests of Asset Pricing Models
Author(s) -
Vaihekoski Mika
Publication year - 2004
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/j.0963-8008.2004.0001.x
Subject(s) - portfolio , capital asset pricing model , market liquidity , financial economics , stock (firearms) , replicating portfolio , business , construct (python library) , portfolio optimization , investment theory , actuarial science , economics , finance , computer science , engineering , mechanical engineering , programming language
Portfolios are commonly used in finance literature to study asset‐pricing models. In business practice portfolios are used to detect abnormal performance in certain asset groups or to construct reference assets. However, analyses on practical issues related to portfolio construction are surprisingly few. This paper presents and discusses issues related to portfolio return calculation from theoretical and practical perspectives. Special attention is given both to smaller and emerging stock markets. These stock markets often share common features like low liquidity, multiple stock series, and changes in foreign ownership restrictions that greatly affect portfolio construction.