Time-Invariance Coefficients Tests with the Adaptive Multi-Factor Model

Liao Zhu, Robert Jarrow () and Martin T. Wells

Papers from arXiv.org

Abstract: The purpose of this paper is to test the time-invariance of the beta coefficients estimated by the Adaptive Multi-Factor (AMF) model. The AMF model is implied by the generalized arbitrage pricing theory (GAPT), which implies constant beta coefficients. The AMF model utilizes a Groupwise Interpretable Basis Selection (GIBS) algorithm to identify the relevant factors from among all traded ETFs. We compare the AMF model with the Fama-French 5-factor (FF5) model. We show that for nearly all time periods with length less than 6 years, the beta coefficients are time-invariant for the AMF model, but not for the FF5 model. This implies that the AMF model with a rolling window (such as 5 years) is more consistent with realized asset returns than is the FF5 model.

Date: 2020-11, Revised 2021-04
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (4)

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Journal Article: Time-Invariance Coefficients Tests with the Adaptive Multi-Factor Model (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2011.04171

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