Asset pricing with a general multifactor structure

Tomohiro Ando, Jushan Bai

Research output: Contribution to journalArticle

18 Citations (Scopus)

Abstract

This article analyzes multifactor models in the presence of a large number of potential observable risk factors and unobservable common and group-specific factors. We show how relevant observable factors can be found from a large given set and how to determine the number of common and group-specific unobservable factors. The method allows consistent estimation of the beta coefficients in the presence of correlations between the observable and unobservable factors. The theory and method are applied to the study of asset returns for A-shares and B-shares traded on the Shanghai and Shenzhen stock exchanges, and to the study of risk prices in the cross section of returns.

Original languageEnglish
Pages (from-to)556-604
Number of pages49
JournalJournal of Financial Econometrics
Volume13
Issue number3
DOIs
Publication statusPublished - 2015

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Specific factors
Factors
Asset pricing
Multi-factor
Risk factors
Asset returns
Shanghai
Cross section
Coefficients
Stock exchange
Price of risk
Multifactor model
Shenzhen

Keywords

  • Factor models
  • Heterogenous coefficients
  • LASSO
  • Panel data analysis
  • Penalized method
  • SCAD

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

Cite this

Asset pricing with a general multifactor structure. / Ando, Tomohiro; Bai, Jushan.

In: Journal of Financial Econometrics, Vol. 13, No. 3, 2015, p. 556-604.

Research output: Contribution to journalArticle

Ando, Tomohiro ; Bai, Jushan. / Asset pricing with a general multifactor structure. In: Journal of Financial Econometrics. 2015 ; Vol. 13, No. 3. pp. 556-604.
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