DP17225 Three Common Factors
|Author(s):||Elena Andreou, Patrick Gagliardini, Eric Ghysels, Mirco Rubin|
|Publication Date:||April 2022|
|Keyword(s):||factor zoo, portfolio sorting, Testing common factors|
|JEL(s):||C22, C38, C53, C55, G10, G12|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=17225|
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.