Asset Pricing with Omitted Factors

• 成果类型: Article
• 署名作者: Giglio, Stefano; Xiu, Dacheng
• 署名单位: Yale University; National Bureau of Economic Research; Center for Economic & Policy Research (CEPR); University of Chicago
• 刊物名称: JOURNAL OF POLITICAL ECONOMY
• ISSN/ISSBN: 0022-3808
• DOI: 10.1086/714090
• 发表日期: 2021
• 页码: 1947-1990
• 关键词: cross-section; factor models; risk premia; MIMICKING PORTFOLIOS; arbitrage; tests; equilibrium; performance

摘要

Standard estimators of risk premia in linear asset pricing models are biased if some priced factors are omitted. We propose a three-pass method to estimate the risk premium of an observable factor, which is valid even when not all factors in the model are specified or observed. The risk premium of the observable factor can be identified regardless of the rotation of the other control factors if together they span the true factor space. Our approach uses principal components of test asset returns to recover the factor space and additional regressions to obtain the risk premium of the observed factor.