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Factor Model Comparisons with Conditioning Information
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AI
DOI：10.1017/S002210902400005X.png)
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Abstract
En 中文
We develop methods for testing factor models when the weights in portfolios of factors and test assets can vary with lagged information. We derive and evaluate consistent standard errors and finite sample bias adjustments for unconditional maximum squared Sharpe ratios and their differences. Bias adjustment using a second-order approximation performs well. We derive optimal zero-beta rates for models with dynamically trading portfolios. Factor models' Sharpe ratios are larger but standard test asset portfolios' maximum Sharpe ratios are larger still when there is dynamic trading. As a result, most of the popular factor models are rejected.
Keywords:
ASSET PRICING-MODELS
PORTFOLIO EFFICIENCY
MARKET EQUILIBRIUM
MULTIVARIATE TESTS
ANOMALIES
RETURNS
BOUNDS
RISK
Journal
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