Two-pass tests of asset pricing models with useless factors

• 成果类型: Article
• 署名作者: Kan, R; Zhang, C
• 署名单位: University of Toronto; Hong Kong University of Science & Technology; University of Alberta
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/0022-1082.00102
• 发表日期: 1999
• 页码: 203-235
• 关键词: expected stock returns; cross-section; equilibrium; arbitrage; portfolio; MARKET; errors; RISK

摘要

In this paper we investigate the properties of the standard two-pass methodology of testing beta pricing models with misspecified factors. In a setting where a factor is useless, defined as being independent of all the asset returns, we provide theoretical results and simulation evidence that the second-pass cross-sectional regression tends to find the beta risk of the useless factor priced more often than it should. More surprisingly, this misspecification bias exacerbates when the number of time series observations increases. Possible ways of detecting useless factors are also examined.