Semi-strong factors in asset returns

Gregory Connor and Robert Korajczyk

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: This paper re nes the approximate factor model of asset returns by dividing sys- tematic factors into a) natural rate factors, whose sum of squared factor betas grow at the same rate as the number of assets, and b) semi-strong factors, whose sum of squared factor betas grow, but at a slower rate. We describe a methodology to estimate the cross-sectional mean and mean-square of semi-strong factor betas, and to di¤eren- tiate them from natural rate factors. We apply the methodology to US equity returns using daily changes in exchange rates and commodity prices as semi-strong factors. We nd that oil and gold price changes are signi cant factors while foreign exchange rate changes are only signi cant in more recent subperiods.

Pages: 49 pages
Date: 2019
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Citations: View citations in EconPapers (1)

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Journal Article: Semi-Strong Factors in Asset Returns* (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:may:mayecw:n294-19.pdf

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