Which Factors?

Review of Finance, Forthcoming

Fisher College of Business Working Paper No. 2018-03-003

Charles A. Dice Center Working Paper No. 2018-03-03

38 Pages Posted: 22 Oct 2018

See all articles by Kewei Hou

Kewei Hou

Ohio State University (OSU) - Department of Finance

Haitao Mo

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Chen Xue

University of Cincinnati

Lu Zhang

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Date Written: September 2018

Abstract

Many recently proposed, seemingly different factor models are closely related. In spanning tests, the q-factor model largely subsumes the Fama-French 5- and 6-factor models, and the q^5 model subsumes the Stambaugh-Yuan 4-factor model. Their “mispricing” factors are sensitive to the construction procedure, and once replicated via the traditional approach, are close to the q-factors, with correlations of 0.8 and 0.84. Finally, consistent with the investment CAPM, valuation theory predicts a positive relation between the expected investment and the expected return.

Keywords: The q-factor model, the q^5 model, spanning regressions, the investment CAPM

JEL Classification: G12, G14

Suggested Citation

Hou, Kewei and Mo, Haitao and Xue, Chen and Zhang, Lu, Which Factors? (September 2018). Review of Finance, Forthcoming, Fisher College of Business Working Paper No. 2018-03-003, Charles A. Dice Center Working Paper No. 2018-03-03, Available at SSRN: https://ssrn.com/abstract=3258579

Kewei Hou

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Haitao Mo

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

Baton Rouge, LA 70803-6308
United States

Chen Xue

University of Cincinnati ( email )

College of Business Administration
Cincinnati, OH 45221
United States
(513) 556-7078 (Phone)

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
276
Abstract Views
2,251
rank
121,131
PlumX Metrics