New Evidence on Conditional Factor Models
59 Pages Posted: 16 Mar 2015 Last revised: 5 May 2018
Date Written: April 28, 2018
We estimate conditional multifactor models over a large cross-section of stock returns matching 25 CAPM anomalies. Using conditioning information associated with different instruments improves the performance of the Hou, Xue, and Zhang (2015, HXZ) and Fama and French (2015, 2016, FF) models. The largest increase in performance holds for momentum, investment, and intangibles-based anomalies. Yet, there are significant differences in scaled models' performance: HXZ clearly dominates FF in explaining momentum and profitability anomalies, while the converse holds for value-growth anomalies. Thus, the asset pricing implications of alternative investment and profitability factors (in a conditional setting) differ in a non-trivial way.
Keywords: asset pricing models; conditional factor models; conditional CAPM; equity risk factors; investment and profitability risk factors; stock market anomalies; cross-section of stock returns; time-varying betas
JEL Classification: G10; G12
Suggested Citation: Suggested Citation