Comparing Asset Pricing Models
60 Pages Posted: 22 Oct 2015 Last revised: 6 Dec 2017
Date Written: January 2, 2017
A Bayesian asset pricing test is derived that is easily computed in closed form from the standard F-statistic. Given a set of candidate traded factors, we develop a related test procedure that permits the computation of model probabilities for the collection of all possible pricing models that are based on subsets of the given factors. We find that the recent models of Hou, Xue, and Zhang (2015a, 2015b) and Fama and French (2015, 2016) are dominated by a variety of models that include a momentum factor, along with value and profitability factors that are updated monthly.
JEL Classification: G10, G12
Suggested Citation: Suggested Citation