How Common are Common Return Factors Across NYSE and NASDAQ?

Abstract:     
We entertain the possibility of pervasive factors that are not common across two (or more) groups of securities. We propose a general procedure to estimate the space spanned by the common pervasive and group-specific pervasive factors. In our empirical analysis, we study the factor structure of excess returns on stocks traded on the NYSE and NASDAQ exchanges using our methodology. We find that there are only two common pervasive factors that govern the returns for both NYSE and NASDAQ. At the same time, both NYSE and NASDAQ have one more group-specific factor (one for each group) that is not the same across the two exchanges. Our results point to the absence of complete similarity between the factors driving the returns on these exchanges. More importantly, we estimate these common pervasive and group-specific pervasive factors.

Keywords: Risk Factors

JEL Classifications: C63, G10, G12

Working Paper Series