Best of the Best: A Comparison of Factor Models

Ahmed, Shamim; Bu, Ziwen; Tsvetanov, Daniel

doi:10.1017/s0022109018000947

Cited by 42 publications

(20 citation statements)

References 81 publications

(220 reference statements)

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“…Some studies report the performance of several asset pricing models across a number of metrics. Ahmed et al ( 2019 ) compare ten prominent asset pricing models and find inconclusive results. In their time-series tests, the Stambaugh and Yuan ( 2017 ) 4-factor model emerges as the best performer followed by the q-factor model.…”

Section: Notable Species In the Factor Zoomentioning

confidence: 99%

Navigating the factor zoo around the world: an institutional investor perspective

et al. 2021

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The literature on cross-sectional stock return predictability has documented over 450 factors. We take the perspective of an institutional investor and navigate this zoo of factors by focusing on the evidence relevant to the practicalities of factor-based investment strategies. Establishing a sound theoretical rationale is key to identifying “true” factors, and we emphasize the need to recognize data-mining concerns that may cast doubt on the relevance of many factors. From a practical investment perspective, much of the factor evidence documented by academics may be more apparent than real. The performance of many factors is dependent on the inclusion of small- and micro-cap stocks in academic studies, although such stocks would likely be excluded from the real investment universe due to illiquidity and transaction costs. Nevertheless, a parsimonious set of factors emerges in equities and other asset classes, including currencies, fixed income, and commodities. These factors can serve as meaningful ingredients to factor-based portfolio construction.

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Section: Notable Species In the Factor Zoomentioning

confidence: 99%

Navigating the factor zoo around the world: an institutional investor perspective

et al. 2021

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“…Following empirical literature (e.g., Ahmed et al, 2019;Fama & French, 2015, 2016, 2018Hou et al, 2015Hou et al, , 2017, we run time-series regressions of each set of testing portfolios on factor models, and assess model performance based on several metrics. Specifically, we examine the GRS-statistic of Gibbons et al (1989), which is used to investigate whether the estimated intercepts from time-series regression of testing portfolios on a factor model are jointly zero; the average absolute intercept, Aja i j, which is used to measure the average deviation of a set of testing assets from a given model; the ratio of the average of intercepts' squared sample standard errors to the average squared intercept,…”

Section: Performance Metricsmentioning

confidence: 99%

The predictive performance of liquidity risk

Zhang

2021

Cogent Economics & Finance

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This paper assesses the explanatory power of the liquidity-risk-based pricing models relative to the Fama-French three-factor model (FF3) and the extensions to the FF3. We find that the liquidity-augmented capital asset pricing model (LCAPM) performs no worse but generally better than other models considered in describing liquidity risk and a variety of anomaly portfolios. Our finding remains intact relative to the troublesome portfolios related to small, value, and aggressive investment.. This study highlights that liquidity risk is not negligible, which is in contrast to some recent findings that the price-impact-based liquidity risk factor contributes little to explain average returns.

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“…The Q-factor model includes four risk factors [4]. The first is the market factor, which encompasses both macroeconomic and overall market risk premiums.…”

Section: Q-factor Modelmentioning

confidence: 99%

Review of the Portfolio Theory Application

Xiao¹

2021

Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)

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Portfolio investment is the core of all kinds of investment activities in the financial market, is an investment decision under uncertain conditions, is an important branch of the economic field. The portfolio is a common way to avoid risk. A portfolio is generally considered to be a combination of bank deposits, bonds, stocks, real estate, precious metals and other investments. In the securities market, that is, even one investment direction has the portfolio problem, and some people call the portfolio of the same investment direction "diversified investment". Therefore, it is very important to study and summarize and analysed the application of portfolio theory. This paper studies the portfolio theory by means of a literature review. Through concept, application model and industry analysis, it is reviewed in detail. The results show that the q-factor model and Fama-French 5-factor model are seldom used in securities, stocks, real estate and other industries. The current research on the CAPM model is more abundant than the previous two models, but there is less research on changing abnormal economic forms. On the one hand, the conclusion of this paper summarizes the investment theory. On the other hand, it lays a theoretical foundation for investment practice.

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Best of the Best: A Comparison of Factor Models

Cited by 42 publications

References 81 publications

Navigating the factor zoo around the world: an institutional investor perspective

Navigating the factor zoo around the world: an institutional investor perspective

The predictive performance of liquidity risk

Review of the Portfolio Theory Application

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