The alpha factor asset pricing model: A parable

Wayne E. Ferson, Sergei Sarkissian, Timothy Simin

Research output: Contribution to journalArticle

56 Scopus citations

Abstract

Recent empirical studies use the returns of attribute-sorted portfolios of common stocks as if they represent risk factors in an asset pricing model. If the attributes are chosen following an empirically observed relation to the cross-section of stock returns, such portfolios will appear to be useful risk factors, even when the attributes are completely unrelated to risk. We illustrate this result using a parable and argue that the moral of the story is important in practice.

Original languageEnglish (US)
Pages (from-to)49-68
Number of pages20
JournalJournal of Financial Markets
Volume2
Issue number1
DOIs
StatePublished - Feb 1999

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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