What is it about?
This paper shows how to construct stock portfolios and how to calculate their returns from a technical point of view especially when the amount of stocks is limited.
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Why is it important?
The article goes through many practical issues that are important when creating portfolios.
Perspectives
This articles basically describes how I constructed portfolios for my doctoral thesis. Publishers website should even contain the Matlab code I used to create the portfolios. Somewhat surprisingly, this article has been one of the most commonly cited articles of mine. Personally I regret that I did not emphasize in the article the fact that when calculating value-weighted returns, you should use percentage returns, not ln-returns.
Professor Mika Vaihekoski
Turun Yliopisto
Read the Original
This page is a summary of: Portfolio Construction for Tests of Asset Pricing Models, Financial Markets Institutions and Instruments, February 2004, Wiley,
DOI: 10.1111/j.0963-8008.2004.0001.x.
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