TRANSFORMED SECURITIES AND ALTERNATIVE FACTOR STRUCTURES

Grinblatt and Titman (1985) reformulate a result of Chamberlain and Ro thschild (1983) to show that the approximate factor structure of Chamb erlain and Rothschild is asymptotically equivalent to the strict facto r structure of Ross (1976) as long as investors can always repackage s ecurities into an equal number of arbitrary portfolios. This paper use s a Procrustes rotation methodology that is compatible with the repack aging interpretation of Grinblatt and Titman to show that the empirica l structure of stock prices is consistent with the convergency hypothe sis.