Characteristic portfolio

A portfolio which efficiently represents a particular asset characteristic. For a given characteristic, it is the minimum risk portfolio, with portfolio characteristic equal to 1. For example, the characteristic portfolio of asset betas is the benchmark. It is the minimum risk beta = 1 portfolio.

Markowitz Efficient Portfolio

In Markowitz Portfolio Theory, a portfolio with the highest level of return at a given level of risk. One who carries such a portfolio cannot further diversify to increase the expected rate of return without accepting a greater amount of risk. Likewise one cannot decrease his/her exposure to risk without proportionately decreasing the expected return. A Markowitz efficient portfolio is determined mathematically and plotted on a chart with risk as the x-axis and expected return as the y-axis. See also: Markowitz efficient set of portfolios, Homogeneous expectations assumption.

References in periodicals archive

Finally, the stocks within each characteristic portfolio are equally weighted at the beginning of each month and the buy-and-hold average daily returns are computed.

The abnormal return each day is the raw CRSP return less the return on a matched size-B-M-momentum characteristic portfolio. Days where the lagged stock price is less than $1 are excluded.

As benchmarks for some tests, I compute the returns of Daniel, Grinblatt, Titman, and Wermers (1997) (hereafter DGTW) characteristic portfolios from this universe of CRSP stocks.

Investor inattention and the underreaction to stock recommendations

Thus, AS is the return a fund would have earned if it did no trading and only held broad characteristic portfolios. This measure typically comprises most of a fund's return (the other two measures are return differentials, not return levels), but this return component does not represent any value added by the fund manager over the period studied.

Managers who anticipate the time-varying premium on the various characteristic portfolios can add value.

Is timing everything? The value of mutual fund manager trades

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