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D. Cervicek:
"Score-based Portfolio Choice";
Talk: Austrian Working Group on Banking and Finance 2018, Paris Lodron-Universität Salzburg Fachbereich Sozial- und Wirtschaftswissenschaften - Finanzmanagement und Finanzdienstleistungen (invited); 2018-11-23 - 2018-11-24.

In this paper, a scoring-based portfolio choice is introduced. We construct scores that are based on characteristics underlying the factor investing literature and apply these to a portfolio choice problem. The advantage of scoring-based portfolio choice is that scores represent direct snapshots of balance sheet items and can therefore solve the problem of noisy factor sensitivity estimates in portfolio construction. We show that there exists an analytical solution for the scoring-based portfolio choice problem and find that significant excess returns can be achieved by implementing it. These excess returns can be attributed to the well-known risk factors of the factor investing literature. At portfolio construction, particular care needs to be taken when scores are implemented for characteristics with non-linear return contributions, as is the case for the book-to-market characteristic.

https://publik.tuwien.ac.at/files/publik_276922.pdf