Equities Risk

More details on economic factor mimicking portfolios

Synopsis

Here we present more details on the return characteristics of the factor mimicking portfolios designed to capture the influence of economic variables. The portfolios are formed every December by sorting the universe of All Ordinaries Index stocks into terciles based on their loadings on the variable of interest. Each stock's loadings are calculated via exponentially-weighted moving average time-series regressions over the previous five years with decay parameter λ = 0.95

Commodity beta Factor mimicking portfolios — Figure 4. Total return indexes of factor mimicking portfolios based on commodity beta.

Trade-weighted index beta Factor mimicking portfolios — Figure 4. Total return indexes of factor mimicking portfolios based on TWI beta.

Market beta Factor mimicking portfolios — Figure 4. Total return indexes of factor mimicking portfolios based on market beta.

Interest rate beta Factor mimicking portfolios — Figure 4. Total return indexes of factor mimicking portfolios based on interest rate beta.

Commodity beta is the time-series loading on the Bloomberg Commodity Index return; TWI beta is the time-series loading on the return of the trade-weighted index of currencies against the AUD; Market beta is the time-series loading on the All Ordinaries Accumulation Index return; Interest rate beta is the time-series loading on changes in yield spread between 10-year and 2-year government bonds.