Download or read book Firm Characteristics, Covariances, and Cross-sectional Expected Returns written by Pengqin Gao and published by . This book was released on 2010 with total page 159 pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate the relationship among firm characteristics, conditional covariance structure of stock returns, and cross-sectional expected returns. In the first chapter of my dissertation, I explore the (abnormal) return covariance pattern of S & P 500 stocks. Their covariance pattern, without being associated with any common factors, is explicitly linked to firm characteristics such as size, momentum, and accounting-based fundamentals. I propose a new covariance estimator based on this observation. In comparison to factor-based covariance models, a characteristic-based covariance model brings substantial diversification benefits and utility gains for a risk-averse investor seeking a global minimum variance portfolio and an optimal tangency portfolio, respectively.