Factor performance is highly sensitive to the number of stocks composing its long and short basis portfolios. We examine three methodological choices that have an impact on portfolio diversification: the (in)dependence and the (a)symmetry of the stock sorting procedure and the sorting...

This paper investigates the mean-variance and diversification properties of risk-based strategies performed on style or basis portfolios. We show that the performance of these risk strategies is improved when performed on portfolios sorted on characteristics correlated with returns and is highly...

This paper explores the gamma trading, timing and managerial skills of individual hedge funds across categories. We replicate the non-linear payoffs of hedge funds with traded options, with the option features being endogenously defined in our replication model. On top of providing a flexible...

We propose a fundamental methodological change to Fama and French (1993) factor construction procedure. Consistent with Lambert and Hübner (2013) sequential sorting procedure to classify stocks, our methodology controls ex ante for pricing errors produced by multifactor models. Our size and...

Fama and French risk premiums do not reliably estimate the magnitude of the size or book-to-market effects, inducing many researchers to inflate the number of factors. We object that controlling ex ante for noise in the estimation procedure enables to keep a parsimonious set of factors. We...