Factor neutral portfolios (with C. A. Valle and N. Meade) OR Spectrum vol.37, no.4, 2015, pp843-867
In this paper, we consider the problem of constructing a factor neutral portfolio (FNP). This is a portfolio of financial assets that exhibits performance independent from a number of underlying factors. We formulate this problem as a mixed-integer linear program, minimising the time-averaged absolute value factor contribution to portfolio return. In this paper, we investigate both ordinary (least squares, mean) regression and quantile regression, specifically median regression, to estimate factor coefficients. Computational results are given for constructing FNPs using stocks drawn from the Standard and Poor’s 500 index.