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UPA Perpustakaan Universitas Jember

Factor risk premiums and invested capital: calculations with stochastic discount factors

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Factor portfolios with value, size, momentum,profitability, and low volatility stocks have historically exhibited high returns after adjusting for market risk. As the weights of these portfolios increase in the stochastic discount factor, the excess returns of these factor strategies should decrease. We compare weights of these factor portfolios in the efficient set relative to which there are no factor risk premiums with market capitalization weights.

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