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How common are common return factors across the NYSE and Nasdaq?

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  • Goyal, Amit
  • Pérignon, Christophe
  • Villa, Christophe

Abstract

We entertain the possibility of pervasive factors that are not common across two (or more) groups of securities. We propose and implement a general procedure to estimate the space spanned by common and group-specific pervasive factors. In our empirical analysis, we study the factor structure of excess returns on stocks traded on the NYSE and Nasdaq using our methodology. We find that there are only two common pervasive factors that govern the returns for both NYSE and Nasdaq. At the same time, the NYSE and Nasdaq each have one more group-specific factor that is not the same across the two exchanges. Our results point to the absence of complete similarity between the factors driving the returns on these exchanges.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 90 (2008)
Issue (Month): 3 (December)
Pages: 252-271

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Handle: RePEc:eee:jfinec:v:90:y:2008:i:3:p:252-271

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Web page: http://www.elsevier.com/locate/inca/505576

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Keywords: Risk factors Factor analysis Asset pricing Arbitrage pricing theory Common subspace;

References

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Citations

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Cited by:
  1. Heaton, Chris & Solo, Victor, 2012. "Estimation of high-dimensional linear factor models with grouped variables," Journal of Multivariate Analysis, Elsevier, vol. 105(1), pages 348-367.
  2. Chen, Pu, 2010. "A Grouped Factor Model," MPRA Paper 28083, University Library of Munich, Germany, revised 11 Jan 2011.
  3. Bai, Jushan & Ando, Tomohiro, 2013. "Multifactor asset pricing with a large number of observable risk factors and unobservable common and group-specific factors," MPRA Paper 52785, University Library of Munich, Germany, revised Dec 2013.
  4. Kim, Don H. & Loretan, Mico & Remolona, Eli M., 2010. "Contagion and risk premia in the amplification of crisis: Evidence from Asian names in the global CDS market," Journal of Asian Economics, Elsevier, vol. 21(3), pages 314-326, June.
  5. Lin, Jianhao & Wang, Meijin & Cai, Lingfeng, 2012. "Are the Fama–French factors good proxies for latent risk factors? Evidence from the data of SHSE in China," Economics Letters, Elsevier, vol. 116(2), pages 265-268.

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