Year: 2025
Type: article
Abstract: This paper extends the function-generated portfolio framework by incorporating stock-specific information based on stochastic portfolio theory. It allows portfolio weights to depend on stock characteristics and market weights, demonstrating improved relative arbitrage efficiency and portfolio performance. An empirical analysis using SSE 50 Index data over 10 years shows that, even with transaction costs, portfolios constructed with the ROA indicator outperform market portfolios and other function-generated portfolios, offering superior arbitrage opportunities.
Authors: Zheyao Zhang, Peibiao Zhao
Institution: Nanjing University of Science and Technology
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4409206428