New Evidence on Conditional Factor Models

59 Pages Posted: 16 Mar 2015 Last revised: 5 May 2018

See all articles by Ilan Cooper

Ilan Cooper

BI Norwegian Business School

Paulo F. Maio

Hanken School of Economics - Department of Finance and Statistics

Date Written: April 28, 2018

Abstract

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

Cooper, Ilan and Maio, Paulo F., New Evidence on Conditional Factor Models (April 28, 2018). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2578681 or http://dx.doi.org/10.2139/ssrn.2578681

Ilan Cooper

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Paulo F. Maio (Contact Author)

Hanken School of Economics - Department of Finance and Statistics ( email )

FI-00101 Helsinki
Finland

HOME PAGE: http://sites.google.com/site/paulofmaio/home

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