Motivating Factors

Kewei Hou, Haitao Mo, Chen Xue and Lu Zhang ()
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Kewei Hou: Ohio State University
Haitao Mo: Louisiana State University
Chen Xue: University of Cincinnati

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Factor models are not immune to p-hacking. In spanning regressions, the q-factor model dominates the Fama-French (2015, 2017) five- and six-factor models, and the Q5 model subsumes the Stambaugh-Yuan (2017) "mispricing" factor model. The "mispricing" factors are sensitive to their construction, and once replicated via the standard approach, are close to the q-factors, with correlations of 0.8 and 0.84. The Fama-French five-factor model does not follow from valuation theory, which predicts a positive relation between the expected investment and the expected return. Finally, the investment CAPM provides a "factors" perspective that differs fundamentally from the consumption CAPM.

JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2018-01
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2018-03

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