A Protocol for Factor Identification

• 成果类型: Article
• 署名作者: Pukthuanthong, Kuntara; Roll, Richard; Subrahmanyam, Avanidhar
• 署名单位: University of Missouri System; University of Missouri Columbia; California Institute of Technology; University of California System; University of California Los Angeles
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhy093
• 发表日期: 2019
• 页码: 1573
• 关键词: cross-section; stock returns; RISK; equilibrium; models; MARKET; number

摘要

We propose a protocol for identifying genuine risk factors. A genuine risk factor must be related to the covariance matrix of returns, must be priced in the cross-section of returns, and should yield a reward-to-risk ratio that is reasonable enough to be consistent with risk pricing. A market factor, a profitability factor, and traded versions of macroeconomic factors pass our protocol, but many characteristic-based factors do not. Several of the underlying characteristics, however, do command premiums in the cross-section.