Best of the Best: A Comparison of Factor Models

Ahmed, Shamim; Bu, Ziwen; Tsvetanov, Daniel

Abstract

We compare major factor models and find that the Stambaugh and Yuan (2016) four-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) five-factor model and the Barillas and Shanken (2018) six-factor model jointly take third place. But the pairwise cross-sectional R2 and the multiple model comparison tests show that the Hou, Xue, and Zhang (2015) q-factor model, the Fama and French (2015) five-factor and four-factor models, and the Barillas and Shanken (2018) six-factor model take equal first place in the horse race.

Citation

Ahmed, S., Bu, Z., & Tsvetanov, D. (2018). Best of the Best: A Comparison of Factor Models. Journal of Financial and Quantitative Analysis, 54(4), 1713-1758. https://doi.org/10.1017/S0022109018000947

• Journal Article Type: Article
• Acceptance Date: Apr 23, 2018
• Online Publication Date: Sep 14, 2018
• Publication Date: Aug 1, 2018
• Deposit Date: May 2, 2018
• Publicly Available Date: Aug 1, 2018
• Journal: Journal of Financial and Quantitative Analysis
• Print ISSN: 0022-1090
• Electronic ISSN: 1756-6916
• Publisher: Cambridge University Press
• Peer Reviewed: Peer Reviewed
• Volume: 54
• Issue: 4
• Pages: 1713-1758
• DOI: https://doi.org/10.1017/S0022109018000947
• Keywords: Asset pricing model, Factor model, Model evaluation
• Public URL: https://nottingham-repository.worktribe.com/output/927533
• Publisher URL: https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/best-of-the-best-a-comparison-of-factor-models/B48456FE562673C373C23A062E6A10C8