Template-type: ReDIF-Paper 1.0
Author-Name: Massimo Guidolin
Author-Name: Erwin Hansen
Author-Name: Martín Lozano-Banda
Title: Portfolio Performance of Linear SDF Models: An Out-of-Sample Assessment
Abstract: We evaluate linear stochastic discount factor models using an ex-post portfolio metric: the realized out-of-sample Sharpe ratio of mean-variance portfolios backed by alternative linear factor models. Using a sample of monthly US portfolio returns spanning the period 1968-2016, we find evidence that multifactor linear models have better empirical properties than the CAPM, not only when the cross-section of expected returns is evaluated in-sample, but also when they are used to inform one-month ahead portfolio selection. When we compare portfolios associated to multifactor models with mean-variance decisions implied by the single-factor CAPM, we document statistically signi?cant differences in Sharpe ratios of up to 10 percent. Linear multifactor models that provide the best in-sample fit also yield the highest realized Sharpe ratios.
Classification-JEL:G11, G12
Keywords: 
Length: 37 pages 
Number: 1885
Creation-Date: 2018
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1885.pdf
File-Format: application/pdf
File-Size: 314
Handle: RePEc:baf:cbafwp:cbafwp1885