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Which Alpha?

Francisco Barillas and Jay Shanken ()

Review of Financial Studies, 2017, vol. 30, issue 4, 1316-1338

Abstract: A common approach to comparing asset pricing models involves a competition in pricing test-asset returns. In contrast, we show that for models with traded factors, when the comparison is framed appropriately in terms of success in pricing both the test-asset and factor returns, the extent to which each model is able to price the factors in the other model is what matters for model comparison. Test assets are irrelevant based on several prominent criteria. For models with nontraded factors, test assets are relevant for model comparison insofar as they are needed to identify factor-mimicking portfolio returns.

JEL-codes: C12 C52 G11 G12 (search for similar items in EconPapers)
Date: 2017
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