In this paper, we identify the most suitable low-frequency proxies for analyzing commodity market quality. We use an 11-year sample of millisecond time-stamped order book data and examine the correlation of high-frequency liquidity and price efficiency measures with their low-frequency proxies measured with daily or 5-min Time-and-Sales (TAS) data. We find that for liquidity, the volatility-over-volume measures are the best proxies for bid–ask spread and price impact. The correlation of price efficiency measures with their daily-frequency counterparts is low. Moderately correlated proxies can be achieved by using 5-min data.

The standard full-sample time-series asset pricing test suffers from poor statistical properties, look-ahead bias, constant-beta assumptions, and rejects models when average factor returns deviate from risk premia. We therefore confront prominent equity pricing models with the classical Fama and MacBeth (1973) cross-sectional test. For all models, we uncover three main findings: (i) the intercept coefficients are economically large and highly statistically significant; (ii) cross-sectional factor risk premium estimates are generally far below the average factor excess returns; and (iii) they are usually not statistically significant. Overall, all new factor models are inconsistent with no-arbitrage pricing and cannot accurately explain the cross-section of stock returns.

Which factor model do investors in corporate bonds use? We examine this question by tracking investors’ decisions to invest in actively managed corporate bond mutual funds with a revealed preference approach. Our main result is that all bond factor models are dominated by the simple Sharpe ratio and Morningstar ratings. For all major corporate bond mutual fund styles, the Sharpe ratio explains fund flows better than alphas from bond factor models. Since the Sharpe ratio (and to some extent also Morningstar ratings) can be easily manipulated in bond markets, our findings have potentially severe implications for all market participants.