The Risk and Return from Factors

Posted: 15 Jun 1998

See all articles by Josef Lakonishok

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance

Jason J. Karceski

LSV Asset Management

Multiple version iconThere are 2 versions of this paper

Abstract

The ability to identify which factors best capture systematic return covariation is central to applications of multifactor pricing models. This paper uses a common data set to evaluate the performance of various proposed factors in capturing return comovements. Factors associated with the market, size, past return, book-to-market and dividend yield help explain return comovement on an out-of-sample basis (although they are not necessarily associated with large premiums in average returns). Except for the default premium and the term premium, macroeconomic factors perform poorly. We document regularities in the behavior of the more important factors, and confirm their influence in the Japanese and U.K. markets as well.

JEL Classification: G12

Suggested Citation

Lakonishok, Josef and Chan, Louis K.C. and Karceski, Jason J., The Risk and Return from Factors. Journal of Financial and Quantitative Analysis, June 1998. Available at SSRN: https://ssrn.com/abstract=95208

Josef Lakonishok (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
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217-333-7185 (Phone)
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National Bureau of Economic Research (NBER)

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Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-6391 (Phone)
217-244-3102 (Fax)

Jason J. Karceski

LSV Asset Management ( email )

155 N Wacker Dr.
Chicago, IL 60654
United States
352-246-7674 (Phone)

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