This paper constructs and examines enhanced global return factors. We focus on three different enhancement approaches. First, we incorporate information about the covariance structure in the cross-section of stock returns. Second, we employ volatility-reducing techniques in the time-series. Third, we exploit diversification benefits. We form six categorical factors by aggregating information from 214 characteristics. Further, we diversify across factors. The enhancement mechanisms are largely successful and when jointly applied increase the optimal Sharpe ratio on average by a factor of 1.96 compared to the traditional factors. Our results point to the importance of employing efficient factors in asset pricing studies.
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