Factors Common to Individual Stock and Sorted Portfolio Returns

Mer, 15/09/2021 - 12:00 / 13:00

201, Luiss

Speaker: Mirco Rubin , EDHEC Business School

Authors:

  • Elena Andreou (University of Cyprus and CEPR)
  • Patrick Gagliardini (Università della Svizzera italiana, Lugano and Swiss Finance Institute)
  • Eric Ghysels (University of North Carolina - Chapel Hill and CEPR)
  • Mirco Rubin (EDHEC Business School, Nice)

 

Abstract

There are two commonly used approaches to cross-sectional asset pricing, each with pros and cons. One consists of collecting stocks into portfolios and subsequently estimate risk exposures. The other consists of estimating cross-sectional risk premia using the entire universe of stocks. Applying a novel test, we identify the factor space common between individual stocks and sorted portfolios - neither affected by time-varying betas nor by the sorting characteristics. We find three factors - which can only partially be explained by Fama-French five factors with(out) momentum. Our three factors also feature superior out-of-sample pricing performance compared to standard pricing models.

 

The event can be attended also online.