Working Paper: NBER ID: w21771
Authors: Francisco Barillas; Jay Shanken
Abstract: A Bayesian asset-pricing test is derived that is easily computed in closed-form from the standard F-statistic. Given a set of candidate traded factors, we develop a related test procedure that permits an analysis of model comparison, i.e., the computation of model probabilities for the collection of all possible pricing models that are based on subsets of the given factors. We find that the recent models of Hou, Xue and Zhang (2015a,b) and Fama and French (2015a,b) are both dominated by five and six-factor models that include a momentum factor, along with value and profitability factors that are updated monthly.
Keywords: No keywords provided
JEL Codes: G11; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inclusion of specific factors (C38) | model performance (C52) |
| six-factor model (C38) | pricing accuracy (L11) |
| five-factor model (C38) | pricing accuracy (L11) |
| posterior probability of zero-alpha restriction (C46) | model performance (C52) |
| model complexity (C52) | pricing accuracy (L11) |