Taming the Factor Zoo : A Test of New Factors

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

14 Scopus Citations
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Original languageEnglish
Pages (from-to)1327-1370
Journal / PublicationThe Journal of Finance
Volume75
Issue number3
Online published24 Jan 2020
Publication statusPublished - Jun 2020

Abstract

We propose a model selection method to systematically evaluate the contribution to asset pricing of any new factor, above and beyond what a high‐dimensional set of existing factors explains. Our methodology accounts for model selection mistakes that produce a bias due to omitted variables, unlike standard approaches that assume perfect variable selection. We apply our procedure to a set of factors recently discovered in the literature. While most of these new factors are shown to be redundant relative to the existing factors, a few have statistically significant explanatory power beyond the hundreds of factors proposed in the past.

Citation Format(s)

Taming the Factor Zoo : A Test of New Factors. / FENG, Guanhao; GIGLIO, Stefano; XIU, Dacheng.

In: The Journal of Finance, Vol. 75, No. 3, 06.2020, p. 1327-1370.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review