CaltechAUTHORS
  A Caltech Library Service

A Protocol for Factor Identification

Pukthuanthong, Kuntara and Roll, Richard and Subrahmanyam, Avanidhar (2019) A Protocol for Factor Identification. Review of Financial Studies, 32 (4). pp. 1573-1607. ISSN 0893-9454. doi:10.1093/rfs/hhy093. https://resolver.caltech.edu/CaltechAUTHORS:20190620-093004868

[img] PDF - Submitted Version
See Usage Policy.

1MB
[img] PDF - Supplemental Material
See Usage Policy.

450kB

Use this Persistent URL to link to this item: https://resolver.caltech.edu/CaltechAUTHORS:20190620-093004868

Abstract

We propose a protocol for identifying genuine risk factors. A genuine risk factor must be related to the covariance matrix of returns, must be priced in the cross-section of returns, and should yield a reward-to-risk ratio that is reasonable enough to be consistent with risk pricing. A market factor, a profitability factor, and traded versions of macroeconomic factors pass our protocol, but many characteristic-based factors do not. Several of the underlying characteristics, however, do command premiums in the cross-section.


Item Type:Article
Related URLs:
URLURL TypeDescription
https://doi.org/10.1093/rfs/hhy093DOIArticle
https://www.ssrn.com/abstract=3197646SSRNWorking Paper
http://resolver.caltech.edu/CaltechAUTHORS:20171128-144249809Related ItemWorking Paper
Additional Information:© The Author(s) 2018. Published by Oxford University Press on behalf of The Society for Financial Studies. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model) Received July 20, 2017; editorial decision June 9, 2018 by Editor Andrew Karolyi. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online. For insightful and constructive comments, we thank two anonymous referees; Andrew Karolyi (the editor), Dave Berger, Michael Brennan, Stephen Brown, Daniel Carvalho, Eric de Bodt, Wayne Ferson, Stefano Gubellinni, Campbell Harvey, Yan Liu, Peter Pope, Stephen Ross, Eduardo Schwartz, Kenneth Singleton, Ivo Welch, and Russ Wermers; and seminar participants at the 2012 Inquire UK conference, the 2013 Southwestern Finance Association annual meeting, the 2013 UCLA Brown Bag Seminar, the 2013 Rotman ICPM Seminar, the 2013 Australian Finance Conference, the 2014 Asian Finance Association Conference in Bali, the 2016 Dauphine-Amundi Conference in Paris, the 2016 Behavioral Finance Conference at the University of Miami, the 2016 Q-Group Conference in Phoenix, and the 2017 UBS/Maryland Conference in New York. We owe a great debt of gratitude to Olivier Ledoit for generous and unstinting guidance. We are thankful for financial support from Inquire UK, the Dauphine-Amundi Chair in Asset Management, the Rotman International Centre for Pension Management (ICPM) at the University of Toronto, and the Q-Group’s 2016 Jack Treynor Award. Supplementary data can be found on The Review of Financial Studies Web site.
Funders:
Funding AgencyGrant Number
Inquire UKUNSPECIFIED
Dauphine-Amundi Chair in Asset ManagementUNSPECIFIED
University of TorontoUNSPECIFIED
Q-GroupUNSPECIFIED
Issue or Number:4
Classification Code:JEL G12 - Asset Pricing; Trading volume; Bond Interest Rates G1 - General Financial Markets G11 - Portfolio Choice; Investment Decisions
DOI:10.1093/rfs/hhy093
Record Number:CaltechAUTHORS:20190620-093004868
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20190620-093004868
Official Citation:Kuntara Pukthuanthong, Richard Roll, Avanidhar Subrahmanyam, A Protocol for Factor Identification, The Review of Financial Studies, Volume 32, Issue 4, April 2019, Pages 1573–1607, https://doi.org/10.1093/rfs/hhy093
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:96595
Collection:CaltechAUTHORS
Deposited By: George Porter
Deposited On:20 Jun 2019 20:11
Last Modified:16 Nov 2021 17:22

Repository Staff Only: item control page