A Comparison of Factor Models for Explaining the Cross Section of Stock Returns
50 Pages Posted: 5 Aug 2005
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: Suggested Citation
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