Risk Premia from the Cross-Section of Individual Assets

Abstract

We analyze ex post risk premia from large cross-sections of individual assets for well-studied risk factors formerly analyzed using a small number of portfolios. We find that market, size, and momentum factors carry largely positive risk premia, while many other factors have much less so. Different factors therefore stand out in the cross-section of individual assets compared to when using limited sets of portfolios. Methodologically, we propose a consistent estimator for ex post risk premia, and provide inference procedures that remain valid under weak assumptions. All-in-all our methodology offers precise, robust, and meaningful inference.

Keywords: continuous updating estimator, identification, robust inference.