Semi-strong Factors in Asset Returns

We refine the approximate factor model of asset returns by distinguishing between natural rate factors, whose sum of squared factor betas grow at the same rate as the number of assets, and semi-strong factors, whose sum of squared factor betas grow to infinity, but at a slower rate. We characterize cross-sectional mean and mean-square of semi-strong factor betas, and differentiate them from natural rate factors. We apply the methodology to daily equity to characterize factors at natural rate, semi-strong, or weak.

Keywords: Semi-strong factors, Factor model

JEL Classification: G11, G12, C38

Suggested Citation: Suggested Citation

Connor, Gregory and Korajczyk, Robert A., Semi-strong Factors in Asset Returns (July 29, 2022). Journal of Financial Econometrics, Michael J. Brennan Irish Finance Working Paper Series Research Paper No. 19-6, Available at SSRN: https://ssrn.com/abstract=3419446 or http://dx.doi.org/10.2139/ssrn.3419446