Factor Zoo (.zip)

Swade, Alexander and Hanauer, Matthias and Lohre, Harald and Blitz, David (2023) Factor Zoo (.zip). Journal of Portfolio Management, 55 (3). pp. 11-31. ISSN 0095-4918

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Abstract

The number of factors allegedly driving the cross-section of stock returns has grown steadily over time. We explore how much this “factor zoo” can be compressed, focusing on explaining the available alpha rather than the covariance matrix of factor returns. Our findings indicate that about 15 factors are enough to span the entire factor zoo. This evidence suggests that many factors are redundant but also that merely using a handful of factors, as in common asset pricing models, is insufficient. While the selected factor styles remain persistent, the specific style representatives vary over time, underscoring the importance of continuous factor innovation.

Item Type:

Journal Article

Journal or Publication Title:

Journal of Portfolio Management

Uncontrolled Keywords:

Research Output Funding/yes_externally_funded

Subjects:

?? yes - externally fundedfinancebusiness, management and accounting(all)economics and econometricsaccounting ??

Departments:

Lancaster University Management School > Accounting & Finance

ID Code:

216109

Deposited By:

ep_importer_pure

Deposited On:

11 Mar 2024 14:50

Refereed?:

Yes

Published?:

Published

Last Modified:

25 Apr 2024 02:42

URI:

https://eprints.lancs.ac.uk/id/eprint/216109