Risk Price Variation: The Missing Half of Empirical Asset Pricing

• 成果类型: Article
• 署名作者: Patton, Andrew J.; Weller, Brian M.
• 署名单位: Duke University; Amazon.com
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhac012
• 发表日期: 2022
• 页码: 5127
• 关键词: cross-section; institutional investors; presidential-address; MARKET-SEGMENTATION; COSTLY ARBITRAGE; momentum; equilibrium; size; time; liquidity

摘要

Equal compensation across assets for the same risk exposures is a bedrock of asset pricing theory and empirics. Yet real-world frictions can violate this equality and create apparently high Sharpe ratio opportunities. We develop new methods for asset pricing with cross-sectional heterogeneity in compensation for risk. We extend k-means clustering to group assets by risk prices and introduce a formal test for whether differences in risk premiums across market segments are too large to occur by chance. We find significant evidence of cross-sectional variation in risk prices for almost all combinations of test assets, factor models, and time periods considered.