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Motivating Factors

Author

Listed:
  • Hou, Kewei

    (Ohio State University)

  • Mo, Haitao

    (Louisiana State University)

  • Xue, Chen

    (University of Cincinnati)

  • Zhang, Lu

    (Ohio State University)

Abstract
Factor models are not immune to p-hacking. In spanning regressions, the q-factor model dominates the Fama-French (2015, 2017) five- and six-factor models, and the Q5 model subsumes the Stambaugh-Yuan (2017) "mispricing" factor model. The "mispricing" factors are sensitive to their construction, and once replicated via the standard approach, are close to the q-factors, with correlations of 0.8 and 0.84. The Fama-French five-factor model does not follow from valuation theory, which predicts a positive relation between the expected investment and the expected return. Finally, the investment CAPM provides a "factors" perspective that differs fundamentally from the consumption CAPM.

Suggested Citation

  • Hou, Kewei & Mo, Haitao & Xue, Chen & Zhang, Lu, 2018. "Motivating Factors," Working Paper Series 2018-03, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2018-03
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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