Interpreting Factor Models

• 成果类型: Article
• 署名作者: Kozak, Serhiy; Nagel, Stefan; Santosh, Shrihari
• 署名单位: University of Michigan System; University of Michigan; University of Chicago; National Bureau of Economic Research; Center for Economic & Policy Research (CEPR); University System of Maryland; University of Maryland College Park
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12612
• 发表日期: 2018
• 页码: 1183-1223
• 关键词: expected stock returns; ASSET PRICING MODEL; cross-section; MULTIBETA REPRESENTATION; AVERAGE RETURNS; INVESTMENT; arbitrage; consumption; momentum; BEHAVIOR

摘要

We argue that tests of reduced-form factor models and horse races between characteristics and covariances cannot discriminate between alternative models of investor beliefs. Since asset returns have substantial commonality, absence of near-arbitrage opportunities implies that the stochastic discount factor can be represented as a function of a few dominant sources of return variation. As long as some arbitrageurs are present, this conclusion applies even in an economy in which all cross-sectional variation in expected returns is caused by sentiment. Sentiment-investor demand results in substantial mispricing only if arbitrageurs are exposed to factor risk when taking the other side of these trades.