Work

Beta Matrix and Common Factors in Stock Returns

Year: 2018

Type: article

Abstract: We consider the estimation methods for the rank of a beta matrix corresponding to a multifactor model and study which method would be appropriate for data with a large number of assets. Our simulation results indicate that a restricted version of Cragg and Donald’s (1997) Bayesian information criterion estimator is quite reliable for such data. We use this estimator to analyze some selected asset pricing models with U.S. stock returns. Our results indicate that the beta matrix from many models fails to have full column rank, suggesting that risk premiums in these models are underidentified.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109017001120

Authors: Seung C. Ahn, Alex R. Horenstein, Na Wang

Institutions: Arizona State University, University of Miami, Hofstra University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3121417161

FWCI: 4.231

Cites: 54

Cited by: 35

Related to: 10