Multifactor Models and Their Consistency with the APT

Ilan Cooper, Liang Ma, Paulo Fraga Martins Maio*, Dennis Philip

*Motsvarande författare för detta arbete

Forskningsoutput: TidskriftsbidragArtikelVetenskapligPeer review


We examine the consistency of several prominent multifactor models from the empirical asset pricing literature with the arbitrage pricing theory (APT) framework. We follow the APT-related literature and estimate the common factor structure from a rich cross-section (associated with 42 major CAPM anomalies) by employing the asymptotic principal components method. Our benchmark model contains six statistical factors and clearly dominates, in both economic and statistical terms, most of the empirical multifactor models proposed in the literature by a good margin. These results represent a critical challenge to the current workhorse models in terms of explaining large-scale equity risk premiums.
Referentgranskad vetenskaplig tidskriftReview of Asset Pricing Studies
StatusPublicerad - 26.12.2020
MoE-publikationstypA1 Originalartikel i en vetenskaplig tidskrift


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