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Modeling the Time Variation in Factor Exposures

Author

Listed:
  • Johan Knif
  • James W. Kolari
  • Gregory Koutmos
  • Seppo Pynonen

Abstract

This paper offers new evidence on the dynamic behavior of multifactor models. Specifically, we investigate the significance and temporal stability of conditional factor betas in the context of multifactor asset pricing models. Using a Kalman filter approach, we find that conditional factor betas are dynamic and their statistical significance varies over time. Furthermore, the inclusion of more factors improves that statistical significance and time stability of the market factor. Overall, our empirical results support the view that multifactors may not be independent risk factors but help to better identify the market factor. JEL classification numbers: G11; G12

Suggested Citation

  • Johan Knif & James W. Kolari & Gregory Koutmos & Seppo Pynonen, 2023. "Modeling the Time Variation in Factor Exposures," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 12(2), pages 1-2.
    • Handle: RePEc:spt:fininv:v:12:y:2023:i:2:f:12_2_2
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset Pricing; Risk Factors.;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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