Which factor model? A systematic return covariation perspective

Shamim Ahmed, Ziwen Bu, Lazaros Symeonidis and Daniel Tsvetanov

Journal of International Money and Finance, 2023, vol. 136, issue C

Abstract: We examine which factor model best captures systematic return covariation by focusing on the economic implications for portfolio risk control. The pairwise variance equality test and the model confidence set procedure suggest that the Fama and French (2015) five-factor model, the Barillas and Shanken (2018) six-factor model, and the Fama and French (2018) six-factor model are the top performers for the factor model-implied minimum risk portfolios in the out-of-sample. When it comes to the minimum tracking error portfolios, the Barillas and Shanken (2018) six-factor model and the Fama and French (2018) six-factor model are the overall winners in the horse race.

Keywords: Asset pricing model; Factor model; Model evaluation; Portfolio selection; Out-of-sample (search for similar items in EconPapers)
JEL-codes: C51 C52 G11 G12 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:136:y:2023:i:c:s0261560623000669

DOI: 10.1016/j.jimonfin.2023.102865

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