Q‐FACTORS IN EMPIRICAL ASSET PRICING: A REVIEW AND SYNTHESIS

Smita Datta and Anindita Chakraborty

Journal of Economic Surveys, 2019, vol. 33, issue 4, 1325-1347

Abstract: The latest development in the asset pricing literature is the emergence of empirical asset pricing models comprising q‐factors (profitability and investment factors) in conjunction with other factors. However, as in the case of the older empirical models, there is scepticism regarding the application of these newer factor models consisting of q‐factors because of the debate surrounding the explanatory power of these empirically inspired asset pricing models. This review attempts to synthesize studies pertaining to the four alternative explanations of the asset pricing models comprising the q‐factors (profitability and investment) – the data snooping hypothesis, the risk‐based explanation, the irrational investor behaviour explanation and the interpretation that suggest that the combination of the risk‐free asset and the factors comprising the model span the mean‐variance efficient tangency portfolio that prices the universe of assets.

Date: 2019
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https://doi.org/10.1111/joes.12327

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jecsur:v:33:y:2019:i:4:p:1325-1347

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