Taming the Factor Zoo: A Test of New Factors

Guanhao Feng (), Stefano Giglio and Dacheng Xiu

Journal of Finance, 2020, vol. 75, issue 3, 1327-1370

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.

Date: 2020
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Citations: View citations in EconPapers (160)

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https://doi.org/10.1111/jofi.12883

Related works:
Working Paper: Taming the Factor Zoo: A Test of New Factors (2020)
Working Paper: Taming the Factor Zoo: A Test of New Factors (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:75:y:2020:i:3:p:1327-1370

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