IDEAS home Printed from https://ideas.repec.org/p/cwl/cwldpp/2386.html
   My bibliography  Save this paper

One Factor to Bind the Cross-Section of Returns

Author

Listed:
  • Nicola Borri

    (Luiss University, Rome)

  • Denis Chetverikov

    (University of California, Los Angeles)

  • Yukun Liu

    (University of Rochester, Simon Business School)

  • Aleh Tsyvinski

    (Yale University)

Abstract

We propose a new non-linear single-factor asset pricing model. Despite its parsimony, this model represents exactly any non-linear model with an arbitrary number of factors and loadings Ð a consequence of the Kolmogorov-Arnold representation theorem. It features only one pricing component, comprising a nonparametric link function of the time-dependent factor and factor loading that we jointly estimate with sieve-based estimators. Using 171 assets across major classes, our model delivers superior cross-sectional performance with a low-dimensional approximation of the link function. Most known finance and macro factors become insignificant controlling for our single-factor.

Suggested Citation

  • Nicola Borri & Denis Chetverikov & Yukun Liu & Aleh Tsyvinski, 2024. "One Factor to Bind the Cross-Section of Returns," Cowles Foundation Discussion Papers 2386, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:2386
    as

    Download full text from publisher

    File URL: https://economics.yale.edu/sites/default/files/2024-04/d2386.pdf
    Download Restriction: no
    ---><---

    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:cwl:cwldpp:2386. 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: Brittany Ladd (email available below). General contact details of provider: https://edirc.repec.org/data/cowleus.html .

    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.