Asset Pricing with a General Multifactor Structure

Tomohiro Ando and Jushan Bai

Journal of Financial Econometrics, 2015, vol. 13, issue 3, 556-604

Abstract: This article analyzes multifactor models in the presence of a large number ofpotential observable risk factors and unobservable common and group-specificfactors. We show how relevant observable factors can be found from a large givenset and how to determine the number of common and group-specific unobservablefactors. The method allows consistent estimation of the beta coefficients in thepresence of correlations between the observable and unobservable factors. Thetheory and method are applied to the study of asset returns for A-shares andB-shares traded on the Shanghai and Shenzhen stock exchanges, and to the studyof risk prices in the cross section of returns.

Keywords: factor models; heterogenous coefficients; LASSO; panel data analysis; penalized method; SCAD (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (36)

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