Conference Agenda
Overview and details of the sessions of this conference. Please select a date or location to show only sessions at that day or location. Please select a single session for detailed view (with abstracts and downloads if available).
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Session Overview |
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SUN 4-2: Risk Factors
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Common Risk Factors in the Returns on Stocks, Bonds (and Options), Redux 1The Wharton School; 2The Wharton School; 3HKUST Business School, Hong Kong S.A.R. (China); 4The Wharton School Are there risk factors that are pervasive across major classes of corporate securities: stocks, bonds, and options? We employ a novel econometric procedure that relies on asset characteristics to estimate a conditional latent factor model. A common risk factor structure prominently emerges across asset classes. Several common factors explain a substantial amount of time-series variation of individual asset returns across all three asset classes, and have sizable Sharpe ratios. Several of our factors are highly correlated with some of asset-class-specific factors as well as macroeconomic and financial variables. While a small set of common factors does not fully capture the cross-section of average returns, imposing the factor structure is useful in practice, especially in out-of-sample analysis. A mean-variance efficient portfolio that utilizes asset characteristics achieves a high Sharpe ratio as different asset classes hedge each other’s exposures to the common factors
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