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Journal of Financial and Quantitative Analysis Vol. 54 No. 4 2019

Best of the Best: A Comparison of Factor Models

Shamim Ahmed1,2,3; Ziwen Bu1,2,3; Daniel Tsvetanov1,2,3

1 University of East Anglia · 2 University of Nottingham · 3 University of Birmingham

open access

Abstract

We compare major factor models and find that the Stambaugh and Yuan (2016) 4-factor model is the overall winner in the time-series domain. The Hou, Xue, and Zhang (2015) q -factor model takes second place and the Fama and French (2015) 5-factor model and the Barillas and Shanken (2018) 6-factor model jointly take third place. The pairwise cross-sectional R 2 and the multiple model comparison tests show that the Hou et al. (2015) q -factor model, the Fama and French (2015) 5-factor and 4-factor models, and the Barillas and Shanken (2018) 6-factor model take equal first place in the horse race.

DOI
10.1017/s0022109018000947
Volume
54
Issue
4
Pages
1713-1758
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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