Firm Characteristics and Empirical Factor Models: A Model Mining Experiment

Beta matrix and common factors in stock returns

Mary Tian

The Review of Financial Studies, 2021, vol. 34, issue 12, 6087-6125

Abstract: In a novel model mining experiment, we data mine hundreds of randomly constructed three-factor models and find that many outperform well-known models from the literature, including those with four and five factors. The results provide compelling evidence that the threshold of factor model success needs to be raised. Confidence intervals for model rankings, derived from a bootstrap simulation, offer new insights into the consistency of a model’s pricing ability. Rankings for some well-known models are unusually volatile, which have wider confidence intervals than that of most of the random factor models.

JEL-codes: C15 C18 G12 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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