Arbitrage Pricing Theory for Idiosyncratic Variance Factors

Renault, Éric; Heijden, Thijs van der; Werker, Bas J. M.

doi:10.2139/ssrn.3065854

Cited by 9 publications

(8 citation statements)

References 44 publications

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“…33 See, for example, Barigozzi and Hallin (2016), Herskovic, Kelly, Lustig, and Van Nieuwerburgh (2016), and Renault, Van Der Heijden, and Werker (2019). …”

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confidence: 99%

Quantile Factor Models

Chen

Dolado²,

Gonzalo³

2021

ECTA

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Quantile factor models (QFM) represent a new class of factor models for high‐dimensional panel data. Unlike approximate factor models (AFM), which only extract mean factors, QFM also allow unobserved factors to shift other relevant parts of the distributions of observables. We propose a quantile regression approach, labeled Quantile Factor Analysis (QFA), to consistently estimate all the quantile‐dependent factors and loadings. Their asymptotic distributions are established using a kernel‐smoothed version of the QFA estimators. Two consistent model selection criteria, based on information criteria and rank minimization, are developed to determine the number of factors at each quantile. QFA estimation remains valid even when the idiosyncratic errors exhibit heavy‐tailed distributions. An empirical application illustrates the usefulness of QFA by highlighting the role of extra factors in the forecasts of U.S. GDP growth and inflation rates using a large set of predictors.

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“…33 See, for example, Barigozzi and Hallin (2016), Herskovic, Kelly, Lustig, and Van Nieuwerburgh (2016), and Renault, Van Der Heijden, and Werker (2019). …”

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confidence: 99%

Quantile Factor Models

Chen

Dolado²,

Gonzalo³

2021

ECTA

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“…We also refer to ∆yit as 'output growth' or 'growth' for brevity.19 See, for example,Herskovic et al (2016) andRenault et al (2016).…”

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confidence: 99%

Uncertainty and Economic Activity: A Multicountry Perspective

Cesa-Bianchi

Pesaran

Rebucci³

2019

The Review of Financial Studies

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We develop an asset pricing model with heterogeneous exposure to a persistent world growth factor to identify global growth and financial shocks in a multicountry panel VAR in volatility and output growth. The econometric estimates yield three sets of empirical results about (1) the importance of global growth for the interpretation of the correlation between volatility and growth over the business cycle and the possible presence of omitted variable bias in single-country VAR studies, (2) the extent to which output shocks drive volatility, and (3) the transmission of volatility shocks to output growth. Authors have furnished data, code, and an Internet Appendix, which are available on the Oxford University Press Web site next to the link to the final published paper online.

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“…Recent contributions most closely related to our work include Hays et al (2012) and Kokoszka et al (2015), Gagliardini et al (2016) and Renault et al (2016). Hays et al (2012)…”

Section: Introductionmentioning

confidence: 99%

“…Compared to (1.2), the coefficients of the factors F n (k) depend on the period n. Their objective is not to test the significance of these (sequences of) coefficients, but to estimate the temporal evolution of risk premia. Renault et al (2016) consider a model similar to (1.4), t ∈ [0, 1] is the fraction t of assets. Their primary interest is in pricing idiosyncratic variance factors.…”

Section: Introductionmentioning

confidence: 99%

Dynamic Functional Regression with Application to the Cross-section of Returns

Kokoszka

Miao

Reimherr

et al. 2017

Journal of Financial Econometrics

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Motivated by testing the significance of risk factors for a cross-section of returns, we develop an inferential framework which involves function-on-scalar regression. Asymptotic theory is developed assuming the factors form a weakly dependent vector-valued time series, and the regression errors are weakly dependent functions. To accommodate the empirical behavior of the cross-section of returns and of the factors, we allow both the factors and the error functions can exhibit mild departures from stationarity. This requires new new asymptotic theory which leads to several tests for the significance of function-valued regression coefficients. The new approach to the study of the significance of risk factors for a cross-section of returns complements the established Fama-French approach based on portfolio construction. It is more suitable if the statistical significance of the risk factors is to be rigorously controlled.

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Arbitrage Pricing Theory for Idiosyncratic Variance Factors

Cited by 9 publications

References 44 publications

Quantile Factor Models

Quantile Factor Models

Uncertainty and Economic Activity: A Multicountry Perspective

Dynamic Functional Regression with Application to the Cross-section of Returns

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