Review of Finance Vol. 23 No. 1 2019

Which Factors?

Kewei Hou¹; Haitao Mo²; Chen Xue³; Lu Zhang⁴

¹ The Ohio State University and China Academy of Financial Research · ² Louisiana State University · ³ University of Cincinnati · ⁴ The Ohio State University and National Bureau of Economic Research

Abstract

Many recently proposed, seemingly different factor models are closely related. In spanning tests, the q-factor model largely subsumes the Fama–French five- and six-factor models, and the q5 model subsumes the Stambaugh–Yuan four-factor model. Their “mispricing” factors are sensitive to the construction procedure, and once replicated via the traditional approach, are close to the q-factors, with correlations of 0.8 and 0.84. Finally, consistent with the investment CAPM, valuation theory predicts a positive relation between the expected investment and the expected return.

DOI

10.1093/rof/rfy032

Volume

23

Issue

1

Pages

1-35

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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