The level, slope, and curve factor model for stocks

• 成果类型: Article
• 署名作者: Clarke, Charles
• 署名单位: University of Kentucky
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2021.08.008
• 发表日期: 2022
• 页码: 159-187
• 关键词: Cross-section of returns; factor model; arbitrage pricing theory; Anomaly

摘要

I develop a method to extract only the priced factors from stock returns. The first step estimates expected returns based on firm characteristics. The second step uses the estimated expected returns to form portfolios. The last step uses principal component analysis to extract factors from the portfolio returns. The procedure isolates and emphasizes the comovement across assets that is related to expected returns as opposed to firm characteristics. It produces three factors-level, slope, and curve-which perform as well or better than other leading models. The methodology performs well in out-of-sample tests. The new factors have macroeconomic risk interpretations. (c) 2021 Elsevier B.V. All rights reserved.