Exploring Multifactor Models: Horse Races, Forecasts, and Bootstrap

U of Toronto, Management Working Paper

49 Pages Posted: 3 Dec 2001

See all articles by Kevin Q. Wang

Kevin Q. Wang

University of Toronto - Joseph L. Rotman School of Management

Date Written: November 2001

Abstract

Multifactor asset pricing models play an important role in evaluation of anomalies and managed portfolios. In empirical studies, however, the researchers' prior often includes a rich set of competing models which all seem plausible, but none is conclusively dominant. In this paper we propose a unified approach to model selection and inference for application and evaluation of factor pricing models. We run horse races among a set of high profile models to select winners according to predictive ability and then utilize White's (2000) reality check methodology to test the top performers. We provide empirical results on testing multifactor explanations of industry momentum, and present a test of the three moment CAPM.

Keywords: Multifactor models, asset pricing, model selection, forecasts, horse races, bootstrap

JEL Classification: G12, C52

Suggested Citation

Wang, Kevin Q., Exploring Multifactor Models: Horse Races, Forecasts, and Bootstrap (November 2001). U of Toronto, Management Working Paper, Available at SSRN: https://ssrn.com/abstract=292579 or http://dx.doi.org/10.2139/ssrn.292579

Kevin Q. Wang (Contact Author)

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6
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416 946 5059 (Phone)
416 971 3048 (Fax)

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