Cross-section without factors
a string model for expected returns
Informazioni aggiuntive
Autori
Distaso W.,
Mele A.,
Vilkov G.
Tipo
Articolo pubblicato in rivista scientifica
Anno
2024
Lingua
Inglese
Sommario
Many asset pricing models assume that expected returns are driven by common factors. We formulate a model where returns are driven by a string, and no-arbitrage restricts each expected return to capture the asset’s granular exposure to all other asset returns: a correlation premium. The model predicts fresh properties for big stocks, which display higher connectivity in bad times, but also work as correlation hedges: they contribute to a negative fraction of the correlation premium, and portfolios that are more exposed to them command a lower premium. The string model performs at least as well as many existing linear factor models.
Parole chiave
String models, Correlation premium, Premium for correlation risk, Cross-section of returns, Big stocks, Arbitrage pricing, Implied correlation
Periodico
Quantitative Finance
Volume
24
Numero ( Mese )
6
Pagine (o numero dell’articolo)
693–718
Diffusione
Licenza
CC BY
Visibilità
Pubblico
Status open access
Hybrid
