Factor Pricing Across Asset Classes

Abstract

An integrated factor model is valuable for multi-asset class investing and proves superior for analyzing fund performance. We study factor pricing across seven major asset classes, including U.S. and international equities, corporate bonds, commodities, currencies, equity indices, and government bonds. The pricing power of models from one asset class for others is limited. We use a factor selection methodology to create an optimal integrated factor model across asset classes. This model includes several equity and corporate bond factors, but prices assets across all asset classes without requiring factors from each. The results suggest that markets are significantly but imperfectly integrated.

Keywords: Factor models, asset classes, model comparison, market integration

JEL Classification: G12, C11, C52