Three Common Factors

Elena Andreou, Patrick Gagliardini, Eric Ghysels and Mirco Rubin

No 17225, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Hint: these are not the Fama-French 3 factors and they are not even spanned by the Fama-French 5 factors. More importantly, they feature superior out-of-sample pricing performance compared to standard asset pricing models. What is “common†about these factors? We identify the factor space common between individual stocks and sorted portfolios - neither affected by time-varying betas nor by the sorting characteristics.

Keywords: Testing common factors; Portfolio sorting; Factor zoo (search for similar items in EconPapers)
JEL-codes: C22 C38 C53 C55 G10 G12 (search for similar items in EconPapers)
Date: 2022-04
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