Best of the best: a comparison of factor models

Shamin Ahmed; Ziwen Bu; Daniel Tsvetanov

doi:10.1017/S0022109018000947

Best of the best: a comparison of factor models

Shamin Ahmed
, Ziwen Bu
, Daniel Tsvetanov

Birmingham Business School

Research output: Contribution to journal › Article › peer-review

6 Citations (Scopus)

291 Downloads (Pure)

Abstract

We compare major factor models and find that the Stambaugh and Yuan (2016) 4-factor model is the overall winner in the time-series domain. The Hou, Xue, and Zhang (2015) q-factor model takes second place and the Fama and French (2015) 5-factor model and the Barillas and Shanken (2018) 6-factor model jointly take third place. The pairwise cross-sectional R ² and the multiple model comparison tests show that the Hou et al. (2015) q-factor model, the Fama and French (2015) 5-factor and 4-factor models, and the Barillas and Shanken (2018) 6-factor model take equal first place in the horse race.

Original language	English
Pages (from-to)	1713-1758
Number of pages	46
Journal	Journal of Financial and Quantitative Analysis
Volume	54
Issue number	4
Early online date	14 Sept 2018
DOIs	https://doi.org/10.1017/S0022109018000947
Publication status	Published - Aug 2019

Keywords

asset pricing model
factor model
model evaluation

ASJC Scopus subject areas

Economics and Econometrics
Accounting
Finance

Access to Document

10.1017/S0022109018000947Licence: None: All rights reserved

Ahmed_et_al_Best_of_the_best_Journal_of_Financial_and_Quantitative_Analysis_2018
Checked for eligibility 22/02/2019 This article has been published in a revised form in Journal of Financial and Quantitative Analysis https://doi.org/10.1017/S0022109018000947. This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © Michael G. Foster School of Business, University of Washington 2018
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https://doi.org/10.1017/S0022109018000947Licence: None: All rights reserved

Cite this

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title = "Best of the best: a comparison of factor models",

abstract = "We compare major factor models and find that the Stambaugh and Yuan (2016) 4-factor model is the overall winner in the time-series domain. The Hou, Xue, and Zhang (2015) q-factor model takes second place and the Fama and French (2015) 5-factor model and the Barillas and Shanken (2018) 6-factor model jointly take third place. The pairwise cross-sectional R 2 and the multiple model comparison tests show that the Hou et al. (2015) q-factor model, the Fama and French (2015) 5-factor and 4-factor models, and the Barillas and Shanken (2018) 6-factor model take equal first place in the horse race. ",

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KW - model evaluation

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ER -

Best of the best: a comparison of factor models

Abstract

Keywords

ASJC Scopus subject areas

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