How Do Factor Premia Vary Over Time? A Century of Evidence
53 Pages Posted: 17 Jun 2019 Last revised: 20 Dec 2019
Date Written: December 18, 2019
Evaluating how factor premia vary over time and across assets classes is challenging due to limited time series data, especially outside of U.S. equities. We examine four prominent factors across six asset classes over a century. We find little evidence for arbitrage activity influencing returns, though some novel evidence of overfitting biases. Using a host of conditioning information motivated by theory, we identify reliable conditional factor premia across markets, particularly when imposing economic restrictions. The variation appears unrelated to macroeconomic risks. The results have important implications for asset pricing theory, supporting theories of dynamic return premia.
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