Investment performance of a concentrated factor-based strategy

Abstract

I discuss the possibility to create an effective concentrated portfolio. The research starts with the observation that retail investors often fail to diversify their portfolios as much as advocated by traditional portfolio theory. Building on this observation, I create a factor-based concentrated trading strategy, to give a straightforward and relatively easy way to invest for retail investors. The strategy uses value, quality and beta as signals to construct monthly portfolios. Over the tested sample, the concentrated portfolio produces a significant alpha that is robust to the CAPM, and the Fama-French 3-Factor and 5-Factor models. Three portfolios are constructed, one long only, one long-short, and a naïve 1/N portfolio. The naïve portfolio is used as a benchmark of excess returns.

Date of Award	24 Oct 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Pedro Barroso (Supervisor)