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Best of the Best: A Comparison of Factor Models

Published online by Cambridge University Press:  14 September 2018

Shamim Ahmed ,
Ziwen Bu  and
Daniel Tsvetanov
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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 R2 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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 4 , August 2019 , pp. 1713 - 1758
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank an anonymous referee, Abhay Abhyankar, Sanjay Banerji, Hendrik Bessembinder (the editor), Weimin Liu, Xiaoquan Liu, and Albert Menkveld for useful comments and suggestions.

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