Abstract
Our purpose is to find factors that are important for expected returns and risk of Swedish industrial portfolios. We have chosen factors that are important for a small open economy. We take into account the small sample problem that surfaces as firms dominating the value weighted test portfolios. An extreme bound analysis investigates the robustness of the estimated parameters. A principal components analysis is used to assess the importance of the factors in explaining covariances of the industrial portfolios. Our overall conclusion is that the market portfolio, which refers to the world as well as the Swedish market portfolio, is almost sufficient for explaining expected returns and risk.
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