Equities Risk

More details on size and momentum factor mimicking portfolios

Synopsis

Here we present more details on the return characteristics of the factor mimicking portfolios designed to capture the influence of style factors captured by various firm attributes. The portfolios are formed every December by sorting the universe of All Ordinaries Index stocks into terciles based on the attribute of interest. The factor mimicking portfolio returns are the monthly return spread between the top tercile portfolio and the bottom tercile portfolio. Relative volatility is the ratio of the factor mimicking portfolio volatility to the volatility of the return spread of randomly assigned tercile portfolios.

Table 1. Return characteristics of size and momentum factor mimicking portfolios.
Factor	Minimum	25th percentile	75th percentile	Maximum	Standard deviation	Relative volatility
Market cap	-0.127	-0.020	0.039	0.142	0.043	2.707
12-month momentum	-0.151	-0.011	0.046	0.158	0.049	2.808
6-month momentum	-0.186	-0.012	0.039	0.136	0.046	2.407
3-month momentum	-0.191	-0.012	0.036	0.130	0.043	2.087

Factor mimicking portfolio total return indices

Factor mimicking portfolios based on 12-month momentum — Figure 1. Total return indexes of factor mimicking portfolios based on 12-month momentum.

Factor mimicking portfolios based on 6-month momentum — Figure 2. Total return indexes of factor mimicking portfolios based on 6-month momentum.

Factor mimicking portfolios based on 3-month momentum — Figure 3. Total return indexes of factor mimicking portfolios based on 3-month momentum.

Factor mimicking portfolios based on market cap — Figure 4. Total return indexes of factor mimicking portfolios based on market capitalisation.