Bayesian tests of global factor models

Fletcher, Jonathan (2018) Bayesian tests of global factor models. Journal of Empirical Finance, 48. pp. 279-289. ISSN 0927-5398

[img] Text (Fletcher-JEF-2018-Bayesian-tests-of-global-factor-models)
Fletcher_JEF_2018_Bayesian_tests_of_global_factor_models.pdf
Accepted Author Manuscript
Restricted to Repository staff only until 26 January 2020.
License: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 logo

Download (576kB) | Request a copy from the Strathclyde author

    Abstract

    I use the Bayesian approach of Barillas and Shanken(2018) to examine the mean-variance efficiency of nine global factor models in global stock returns and to conduct multiple model comparison tests. The mean-variance efficiency of each factor model is strongly rejected. In the multiple model comparison tests, the three-factor model of Asness, Moskowitz and Pedersen(2013) has the best performance at higher prior maximum Sharpe(1966) ratio multiples and significantly outperforms all the other factor models. However, in out-of-sample tests, the AMP model significantly underperforms the best performing models that can be formed among the set of all factors used by the global factor models.