Fundamental properties of linear factor models
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arXiv
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| Main Authors: | , |
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| Format: | Preprint |
| Published: |
2024
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| _version_ | 1866910807740121088 |
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| author | Filipovic, Damir Schneider, Paul |
| author_facet | Filipovic, Damir Schneider, Paul |
| contents | We study conditional linear factor models in the context of asset pricing panels. Our analysis focuses on conditional means and covariances to characterize the cross-sectional and inter-temporal properties of returns and factors as well as their interrelationships. We also review the conditions outlined in Kozak and Nagel (2024) and show how the conditional mean-variance efficient portfolio of an unbalanced panel can be spanned by low-dimensional factor portfolios, even without assuming invertibility of the conditional covariance matrices. Our analysis provides a comprehensive foundation for the specification and estimation of conditional linear factor models. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2409_02521 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Fundamental properties of linear factor models Filipovic, Damir Schneider, Paul Statistical Finance Applications 62P20 We study conditional linear factor models in the context of asset pricing panels. Our analysis focuses on conditional means and covariances to characterize the cross-sectional and inter-temporal properties of returns and factors as well as their interrelationships. We also review the conditions outlined in Kozak and Nagel (2024) and show how the conditional mean-variance efficient portfolio of an unbalanced panel can be spanned by low-dimensional factor portfolios, even without assuming invertibility of the conditional covariance matrices. Our analysis provides a comprehensive foundation for the specification and estimation of conditional linear factor models. |
| title | Fundamental properties of linear factor models |
| topic | Statistical Finance Applications 62P20 |
| url | https://arxiv.org/abs/2409.02521 |