Template-Type: ReDIF-Article 1.0

Author-Name: Máté Fain
Author-Workplace-Name: Corvinus University of Budapest
Author-Email: mate.fain@uni-corvinus.hu

Author-Name: Helena Naffa
Author-Workplace-Name: Corvinus University of Budapest
Author-Email: helena.naffa@uni-corvinus.hu

Title: Performance Measurement of Active Investment Strategies Using Pure Factor Portfolios

Abstract: The article uses pure factor portfolios formed by multivariate cross-sectional
regressions to examine whether these active investment strategies could achieve
excess return relative to passive strategies. The hypothesis can also be construed as
a test of market efficiency. The study includes ten style factors. Our empirical study
shows that a consensus buy strategy of the pure value factor yielded significant
positive excess returns in the past almost 20 years. Size and momentum factors
characterised in the literature by positive excess return are not significant in our
study. Excess return of the factors capturing riskiness (earnings variability, volatility,
leverage) is significant and negative, which corroborates with our expectations,
rendering a consensus sell investment strategy successful, based on these factors.
The profitability, growth and trading activity factors produced results contrary to
our expectations; therefore, excess return could have been achieved via a contrarian
selling strategy. Our research results are consistent with the weak form of market
efficiency analyses.

Classification-JEL: G11, G12, G14, G15
Keywords: equity markets, asset pricing, return, pure factor portfolio, multivariate regression, performance measurement, market efficiency
Pages: 52-86
Volume: 18
Issue: 2
Year: 2019
File-URL: http://english.hitelintezetiszemle.hu/letoltes/fer-18-2-st3-fain-naffa.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:18:y:2019:i:2:p:52-86