A Cap-Axis Integral Diagnostic of Factor Models

Useong Shin

Papers from arXiv.org

Abstract: I propose a cap-axis integral diagnostic for factor-model evaluation. Low-dimensional factor models can improve the maximum-Sharpe frontier while leaving zero-alpha violations on economically fixed subspaces. The diagnostic studies one such subspace by lifting pricing errors into a bridge-alpha curve along the market-capitalization rank axis. Under an aggregate-market gate, a zero curve is equivalent to pricing the market's internal cap-rank subspace. In 1967-2024 CRSP data, q5's daily negative bridge attenuates under lead-lag correction, while Fama-French and Carhart bridges are more visible monthly. Across 154 factors, the cap-axis norm is distinct from Sharpe gain and size exposure.

Date: 2026-07, Revised 2026-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2607.01765 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2607.01765

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().