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Three Common Factors

Author

Listed:
  • Ghysels, Eric
  • Andreou, Elena
  • Gagliardini, Patrick
  • Rubin, Mirco

Abstract

Hint: these are not the Fama-French 3 factors and they are not even spanned by the Fama-French 5 factors. More importantly, they feature superior out-of-sample pricing performance compared to standard asset pricing models. What is “common†about these factors? We identify the factor space common between individual stocks and sorted portfolios - neither affected by time-varying betas nor by the sorting characteristics.

Suggested Citation

  • Ghysels, Eric & Andreou, Elena & Gagliardini, Patrick & Rubin, Mirco, 2022. "Three Common Factors," CEPR Discussion Papers 17225, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17225
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    More about this item

    Keywords

    Testing common factors; Portfolio sorting; Factor zoo;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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