Factor Models as 'Explanatory Unifiers' versus 'Explanatory Ideals' of Empirical Regularities of Stock Returns

Phoebe Koundouri (), Nikolaos Kourogenis, Nikitas Pittis () and Panagiotis Samartzis
Additional contact information
Nikitas Pittis: University of Piraeus, Greece

No 1507, DEOS Working Papers from Athens University of Economics and Business

Abstract: In this paper we investigate whether the empirical regularities of stock returns are independent of each other or whether any one of them implies all the others. If such a regularity exists, it is called 'fundamental' and is usually thought of as a 'deductive explanation' of the others. We demonstrate that such a fundamental regularity of stock returns is the one represented by the single factor model with a stochastically persistent beta coefficient (SFM- AR). Indeed, this regularity alone entails all the usual regularities of stock returns, including conditional heteroskedasticity, leptokurtosis aggregational Gaussianity and aggregational Independence. Hence, SFM-AR may be thought of as an "explanatory unifier" of the empirical regularities of stock returns. However, since the theoretical origins of SFM-AR are weak, its explanatory status falls short of meeting the standards of the 'ideal explanatory text'.

Keywords: empirical regularities; stock returns; single factor model; autoregressive beta; statistical explanation. (search for similar items in EconPapers)
JEL-codes: C18 C22 G10 G11 G12 (search for similar items in EconPapers)
Date: 2015-02-05
References: Add references at CitEc
Citations:

Downloads: (external link)
http://wpa.deos.aueb.gr/docs/Factor.Models.as.Expl ... planatory.Ideals.pdf First version (application/pdf)

Related works:
Working Paper: Factor Models as "Explanatory UniÖers" versus "Explanatory Ideals" of Empirical Regularities of Stock Returns (2015)
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:aue:wpaper:1507

Access Statistics for this paper

More papers in DEOS Working Papers from Athens University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Ekaterini Glynou ().