IDEAS home Printed from https://ideas.repec.org/a/taf/jnlbes/v43y2025i4p910-925.html

Instability of Factor Strength in Asset Returns

Author

Listed:
  • Daniele Massacci

Abstract

We study the problem of detecting structural instability of factor strength in asset pricing models for financial returns with observable factors. We allow for strong and weaker factors, in which the sum of squared betas grows at a rate equal to and slower than the number of test assets, respectively: this growth rate determines the strength of the corresponding factor. We propose LM and Wald statistics for the null hypothesis of stability and derive their asymptotic distribution when the break fraction is known, as well as when it is unknown and has to be estimated. We corroborate our theoretical results through a comprehensive series of Monte Carlo experiments. An extensive empirical analysis uncovers the dynamics of instability of factor strength in financial returns from equity portfolios.

Suggested Citation

  • Daniele Massacci, 2025. "Instability of Factor Strength in Asset Returns," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 43(4), pages 910-925, October.
    • Handle: RePEc:taf:jnlbes:v:43:y:2025:i:4:p:910-925
    DOI: 10.1080/07350015.2024.2444344
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/07350015.2024.2444344
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/07350015.2024.2444344?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:jnlbes:v:43:y:2025:i:4:p:910-925. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/UBES20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.