Best of the Best: A Comparison of Factor Models

95 Pages Posted: 15 May 2018

See all articles by Shamim Ahmed

Shamim Ahmed

University of Liverpool Management School

Ziwen Bu

University of Birmingham - Birmingham Business School

Daniel Tsvetanov

University of East Anglia (UEA) - Norwich Business School

Date Written: April 27, 2018

Abstract

We compare major factor models and find that the Stambaugh and Yuan (2016) four-factor model is the overall winner in the time-series domain. The Hou, Xue, and Zhang (2015) q-factor model takes second place and the Fama and French (2015) five-factor model and the Barillas and Shanken (2018) six-factor model jointly take third place. But the pairwise cross-sectional R2 and the multiple model comparison tests show that the Hou, Xue, and Zhang (2015) q-factor model, the Fama and French (2015) five-factor and four-factor models, and the Barillas and Shanken (2018) six-factor model take equal first place in the horse race.

Keywords: Asset Pricing Model, Factor Model, Model Evaluation

JEL Classification: C51, C52, G12

Suggested Citation

Ahmed, Shamim and Bu, Ziwen and Tsvetanov, Daniel, Best of the Best: A Comparison of Factor Models (April 27, 2018). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3169251

Shamim Ahmed (Contact Author)

University of Liverpool Management School ( email )

Ziwen Bu

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Daniel Tsvetanov

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich Research Park
Norfolk
Norwich, NR4 7TJ
United Kingdom

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