A Performance Comparison of Large-n Factor Estimators. (29th May 2017)

• Record Type: Journal Article
• Authors: Chen, Zhuo; Connor, Gregory; Korajczyk, Robert A
• Is Part Of: Review of asset pricing studies. Volume 8:Number 1(2018:Jun.)
• Page Start: 153
• Page End: 182
• Publication Date: 2017-05-29
• Subjects: Capital assets pricing model -- Periodicals; Stocks -- Prices -- Periodicals; Investments -- Valuation -- Periodicals; Finance -- Periodicals; 332.632042
• DOI: 10.1093/rapstu/rax017
• Languages: English
• ISSNs: 2045-9939

Abstract

Abstract: We evaluate the performance of various methods for estimating factor returns in an approximate factor model. Differences across estimators are most pronounced when there is cross-sectional heteroscedasticity or when cross-sectional sample sizes, n, have fewer than 4, 000 assets. Estimators incorporating either cross-sectional or time-series heteroscedasticity outperform the other estimators when those types of heteroscedasticity are present. The differences are most pronounced when the cross-sectional sample is small. Received December 2, 2015; editorial decision May 16, 2017 by Editor Jeffrey Pontiff.