A Comparison of Factor Models for Explaining the Cross Section of Stock Returns

50 Pages Posted: 5 Aug 2005

See all articles by Yong Wang

Yong Wang

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: July 2005

Abstract

We run a horse race among eight proposed factors and eight proposed conditioning variables for explaining the cross section of stock returns. The purpose is to better understand which factors, in combination with which conditioning variables, seem robust in explaining cross-sectional data, and to seek an economic interpretation of the specifications that appear most promising. We find that a consumption growth factor, conditioning on lagged business income growth, is the most successful in explaining cross sectional variation of average quarterly returns in the 25 Fama-French portfolios.

Keywords: Conditional Asset Pricing Model, Factor Models, Cross Section of Stock Returns

JEL Classification: G1, G12

Suggested Citation

Wang, Yong, A Comparison of Factor Models for Explaining the Cross Section of Stock Returns (July 2005). Available at SSRN: https://ssrn.com/abstract=769084 or http://dx.doi.org/10.2139/ssrn.769084

Yong Wang (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom, Kowloon
Hong Kong
Hong Kong