Details
| Originalsprache | Englisch |
|---|---|
| Aufsatznummer | 106626 |
| Fachzeitschrift | Journal of Banking and Finance |
| Jahrgang | 145 |
| Frühes Online-Datum | 5 Sept. 2022 |
| Publikationsstatus | Veröffentlicht - Dez. 2022 |
Abstract
The standard full-sample time-series asset pricing test suffers from poor statistical properties, look-ahead bias, constant-beta assumptions, and rejects models when average factor returns deviate from risk premia. We therefore confront prominent equity pricing models with the classical Fama and MacBeth (1973) cross-sectional test. For all models, we uncover three main findings: (i) the intercept coefficients are economically large and highly statistically significant; (ii) cross-sectional factor risk premium estimates are generally far below the average factor excess returns; and (iii) they are usually not statistically significant. Overall, all new factor models are inconsistent with no-arbitrage pricing and cannot accurately explain the cross-section of stock returns.
ASJC Scopus Sachgebiete
- Volkswirtschaftslehre, Ökonometrie und Finanzen (insg.)
- Finanzwesen
- Volkswirtschaftslehre, Ökonometrie und Finanzen (insg.)
- Volkswirtschaftslehre und Ökonometrie
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in: Journal of Banking and Finance, Jahrgang 145, 106626, 12.2022.
Publikation: Beitrag in Fachzeitschrift › Artikel › Forschung › Peer-Review
}
TY - JOUR
T1 - Testing Factor Models in the Cross-Section
AU - Hollstein, Fabian
AU - Prokopczuk, Marcel
PY - 2022/12
Y1 - 2022/12
N2 - The standard full-sample time-series asset pricing test suffers from poor statistical properties, look-ahead bias, constant-beta assumptions, and rejects models when average factor returns deviate from risk premia. We therefore confront prominent equity pricing models with the classical Fama and MacBeth (1973) cross-sectional test. For all models, we uncover three main findings: (i) the intercept coefficients are economically large and highly statistically significant; (ii) cross-sectional factor risk premium estimates are generally far below the average factor excess returns; and (iii) they are usually not statistically significant. Overall, all new factor models are inconsistent with no-arbitrage pricing and cannot accurately explain the cross-section of stock returns.
AB - The standard full-sample time-series asset pricing test suffers from poor statistical properties, look-ahead bias, constant-beta assumptions, and rejects models when average factor returns deviate from risk premia. We therefore confront prominent equity pricing models with the classical Fama and MacBeth (1973) cross-sectional test. For all models, we uncover three main findings: (i) the intercept coefficients are economically large and highly statistically significant; (ii) cross-sectional factor risk premium estimates are generally far below the average factor excess returns; and (iii) they are usually not statistically significant. Overall, all new factor models are inconsistent with no-arbitrage pricing and cannot accurately explain the cross-section of stock returns.
KW - Factor models
KW - beta estimation
KW - cross-sectional tests
KW - no-arbitrage pricing
UR - http://www.scopus.com/inward/record.url?scp=85137294120&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2022.106626
DO - 10.1016/j.jbankfin.2022.106626
M3 - Article
VL - 145
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
SN - 0378-4266
M1 - 106626
ER -