Journal of Financial Economics Vol. 162 2024
Comparing factor models with price-impact costs
open access
Abstract
We propose a formal statistical test to compare asset-pricing models in the presence of price impact. In contrast to the case without trading costs, we show that in the presence of price-impact costs different models may be best at spanning the investment opportunities of different investors depending on their absolute risk aversion. Empirically, we find that the five-factor model of Hou et al. (2021), the six-factor model of Fama and French (2018) with cash-based operating profitability, and a high-dimensional model are best at spanning the investment opportunities of investors with high, medium, and low absolute risk aversion, respectively.
- DOI
- 10.1016/j.jfineco.2024.103949
- Volume
- 162
- Pages
- 103949
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref