What is missing in asset-pricing factor models

This event has now finished.
  • Date and time: Wednesday 19 April 2023, 1pm to 2pm
  • Location: In-person only
    A/D271 above Alcuin Porters, Alcuin College, Campus West, University of York (Map)
  • Audience: Open to staff, students
  • Admission: Free admission, booking not required

Event details

This seminar is hosted by Adam Golinski

Abstract: Our objective is to price the cross section of asset returns.  Despite considering hundreds of systematic risk factors (``factor zoo''), factor models still have a sizable pricing error. A limitation of these models is that returns compensate only for systematic risk. We allow compensation also for unsystematic risk. The resulting stochastic discount factor (SDF) prices the cross section of stock returns exactly, resolving the factor zoo. Empirically, about 70\% variation of this SDF is explained by its unsystematic risk component, which is correlated with strategies reflecting market frictions and behavioral biases.


About the speaker: Irina ZVIADADZE (HEC Paris)