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 language | English (US) |
|---|---|
| Pages (from-to) | 49-68 |
| Number of pages | 20 |
| Journal | Journal of Financial Markets |
| Volume | 2 |
| Issue number | 1 |
| DOIs | |
| State | Published - Feb 1999 |
All Science Journal Classification (ASJC) codes
- Finance
- Economics and Econometrics
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Ferson, W. E., Sarkissian, S., & Simin, T. (1999). The alpha factor asset pricing model: A parable. Journal of Financial Markets, 2(1), 49-68. https://doi.org/10.1016/S1386-4181(98)00005-6