Efficient Factor Returns Replication in China A-Share Market

We present alternative methods for constructing factor-mimicking portfolios in practice We illustrate how portfolios with a limited number of assets and relatively low turnover can be used to track pure factor returns These portfolios provide an effective instrument to support the practice of investment management We illustrate how they can be used to hedge out unintended factor exposures of a passive benchmark, thus facilitating the optimal management of beta exposure We illustrate how they can be used to hedge out unintended factor exposures of an active strategy, thus isolating pure alpha and facilitating the management of alternative sources of alpha