Affiliation:
1. Olin School of Business, Washington University in St. Louis, St. Louis, Missouri 63130;
2. Peking University HSBC Business School, Shenzhen 518055, P. R. China
Abstract
Starting from twelve distinct factors from the recent literature, plus twelve principal components (PCs) of anomalies unexplained by the initial factors, a Bayesian comparison of approximately seventeen million models in terms of marginal likelihoods and posterior model probabilities shows that {Mkt, MOM, IA, ROE, MGMT, PERF, PEAD, FIN}, plus the nonconsecutive principal components, {[Formula: see text]} are the best supported risk factors. Pricing tests and annualized out-of-sample Sharpe ratios for tangency portfolios suggest that this asset pricing model should be used for computing expected returns, assessing investment strategies and building portfolios. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4668 .
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Subject
Management Science and Operations Research,Strategy and Management
Cited by
2 articles.
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