Once a pricing test has a factor return, the researcher still has to say who is in the
book. This topic writes the book-to-price portfolio: breakpoints, weights, peer-group
ranks, the exposures set to zero, and the rule for leaving a failed ratio out of a
composite. The quantitative factor catalogue and the multifactor weight formula are the neighbours. They are not re-derived.
By the end of this note you should be able to:
- specify an equal-weighted, within-sector, non-overlapping book-to-price decile and contrast it with a value-weighted 30/40/30 mimicking leg;
- zero beta and size without confusing that step with dollar neutrality;
- refuse an equal-weight blend of an insignificant book-to-price row with a significant cash-flow row.
In this lesson
- Contents
- The big picture
The full lesson is for members.
Read the full lessonNew to SelfMadeQuant.com? See membership options or browse the Empirical Asset Pricing and Factor Investing syllabus.