Comparing Asset Pricing Models
Event details
| Date | 04.05.2015 |
| Hour | 14:00 › 15:30 |
| Speaker | Jay A. SHANKEN (Emory University) |
| Location | |
| Category | Conferences - Seminars |
A Bayesian asset-pricing test is developed that is easily computed in closed-form from the standard F-statistic. Given a set of candidate traded factors, we show how this test can be adapted to permit an analysis of Bayesian 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 q-factor model is superior to the Fama-French three-factor model augmented by profitability and net investment factors, but both models are dominated by five or six-factor models that include a momentum factor and value and profitability factors that are updated monthly. Thus, although the standard value factor is redundant, our tests show that a version that incorporates more timely price information is not.
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