Shrinking Factor Dimension: A Reduced-Rank Approach

References

• Ahn D-H, Conrad J, Dittmar RF (2009) Basis assets. Rev. Financial Stud. 22(12):5133–5174.Crossref, Google Scholar
• Anderson T (1951) Estimating linear restrictions on regression coefficients for multivariate normal distributions. Ann. Math. Statist. 22(3):327–351.Crossref, Google Scholar
• Avramov D, Cheng S, Metzker L (2022) Machine learning vs. economic restrictions: Evidence from stock return predictability. Management Sci. Forthcoming.Link, Google Scholar
• Bai J (2003) Inferential theory for factor models of large dimensions. Econometrica 71(1):135–171.Crossref, Google Scholar
• Balvers RJ, Stivers A (2018) Efficient factor selection: Explaining risk and mean returns jointly. Working paper.Google Scholar
• Barillas F, Shanken J (2018) Comparing asset pricing models. J. Finance 73(2):715–754.Crossref, Google Scholar
• Chen AY, Velikov M (2022) Zeroing in on the expected returns of anomalies. J. Financial Quant. Anal. Forthcoming.Crossref, Google Scholar
• Chib S, Zeng X, Zhao L (2020) On comparing asset pricing models. J. Finance 75(1):551–577.Crossref, Google Scholar
• Chib S, Zhao L, Zhou G (2022) Winners from winners: A tale of risk factors. Management Sci. Forthcoming.Google Scholar
• Chordia T, Goyal A, Saretto A (2020) Anomalies and false rejections. Rev. Financial Stud. 33(5):2134–2179.Crossref, Google Scholar
• Cochrane JH (2011) Presidential address: Discount rates. J. Finance 66(4):1047–1108.Crossref, Google Scholar
• Cong LW, Tang K, Wang J, Zhang Y (2021) Alphaportfolio: Direct construction through reinforcement learning and interpretable AI. Working paper.Google Scholar
• Daniel K, Titman S (2012) Testing factor-model explanations of market anomalies. Critical Finance Rev. 1:103–139.Crossref, Google Scholar
• Daniel K, Mota L, Rottke S, Santos T (2020) The cross-section of risk and return. Rev. Financial Stud. 33(5):1927–1979.Crossref, Google Scholar
• DeMiguel V, Martin-Utrera A, Nogales FJ, Uppal R (2020) A portfolio perspective on the multitude of firm characteristics. Rev. Financial Stud. 33:2180–2222.Crossref, Google Scholar
• Eisfeldt AL, Papanikolaou D (2013) Organization capital and the cross-section of expected returns. J. Finance 68(4):1365–1406.Crossref, Google Scholar
• Fama EF, French KR (1993) Common risk factors in the returns on stocks and bonds. J. Financial Econom. 33(1):3–56.Crossref, Google Scholar
• Fama EF, French KR (2015) A five-factor asset pricing model. J. Financial Econom. 116(1):1–22.Crossref, Google Scholar
• Fama EF, French KR (2020) Comparing cross-section and time-series factor models. Rev. Financial Stud. 33(5):1891–1926.Crossref, Google Scholar
• Fan J, Liao Y, Mincheva M (2013) Large covariance estimation by thresholding principal orthogonal complements. J. Roy. Statist. Soc. Ser. B Statist. Methodology 75(4):603–680.Crossref, Google Scholar
• Feng G, Giglio S, Xiu D (2020) Taming the factor zoo. J. Finance 75(3):1327–1370.Crossref, Google Scholar
• Freyberger J, Neuhierl A, Weber M (2020) Dissecting characteristics nonparametrically. Rev. Financial Stud. 33(5):2326–2377.Crossref, Google Scholar
• Gibbons MR, Ross SA, Shanken J (1989) A test of the efficiency of a given portfolio. Econometrica 57(5):1121–1152.Crossref, Google Scholar
• Giglio S, Xiu D (2021) Asset pricing with omitted factors. J. Political Econom. 129(7):1947–1990.Crossref, Google Scholar
• Giglio S, Kelly B, Xiu D (2021a) Factor models, machine learning, and asset pricing. Working paper.Google Scholar
• Giglio S, Xiu D, Zhang D (2021b) Test assets and weak factors. Working paper.Google Scholar
• Green J, Hand JRM, Zhang XF (2017) The characteristics that provide independent information about average U.S. monthly stock returns. Rev. Financial Stud. 30(12):4389–4436.Crossref, Google Scholar
• Gu S, Kelly BT, Xiu D (2020) Empirical asset pricing via machine learning. Rev. Financial Stud. 33(5):2223–2273.Crossref, Google Scholar
• Han Y, He A, Rapach DE, Zhou G (2021) Firm characteristics and expected stock returns. Working paper.Google Scholar
• Hansen LP (1982) Large sample properties of generalized method of moments estimators. Econometrica 50(4):1029–1054.Crossref, Google Scholar
• Harvey CR, Liu Y (2021) Lucky factors. J. Financial Econom. 141(2):413–435.Crossref, Google Scholar
• Harvey CR, Liu Y, Zhu H (2016) …and the cross-section of expected returns. Rev. Financial Stud. 29(1), 5–68.Crossref, Google Scholar
• Hou K, Xue C, Zhang L (2015) Digesting anomalies: An investment approach. Rev. Financial Stud. 28(3):650–705.Crossref, Google Scholar
• Hou K, Xue C, Zhang L (2020) Replicating anomalies. Rev. Financial Stud. 33(5):2019–2133.Crossref, Google Scholar
• Huang D, Jiang F, Li K, Tong G, Zhou G (2022) Scaled PCA: A new approach to dimension reduction. Management Sci. 68(3):1678–1695.Link, Google Scholar
• Kelly B, Pruitt S (2013) Market expectations in the cross section of present values. J. Finance 68(5):1721–1756.Crossref, Google Scholar
• Kelly BT, Pruitt S, Su Y (2017) Instrumented principal component analysis. Working paper.Google Scholar
• Kelly BT, Pruitt S, Su Y (2019) Characteristics are covariances: A unified model of risk and return. J. Financial Econom. 134(3):501–524.Crossref, Google Scholar
• Kozak S, Nagel S, Santosh S (2020) Shrinking the cross section. J. Financial Econom. 135(2):271–292.Crossref, Google Scholar
• Lettau M, Pelger M (2020) Factors that fit the time series and cross-section of stock returns. Rev. Financial Stud. 33(5):2274–2325.Crossref, Google Scholar
• Lewellen J, Nagel S, Shanken J (2010) A skeptical appraisal of asset pricing tests. J. Financial Econom. 96(2):175–194.Crossref, Google Scholar
• Pastor L, Stambaugh R (2003) Liquidity risk and expected stock returns. J. Political Econom. 111(3):642–685.Crossref, Google Scholar
• Patton AJ, Weller B (2020) What you see is not what you get: The costs of trading market anomalies. J. Financial Econom. 137(2):515–549.Crossref, Google Scholar
• Reinsel G, Velu R (1998) Multivariate Reduced Rank Regression, Lecture Notes in Statistics (Springer, New York).Crossref, Google Scholar
• Reinsel G, Velu R, Chen K (2022) Multivariate Reduced Rank Regression (Springer, New York).Crossref, Google Scholar
• Ross SA (1978) Mutual fund separation in financial theory—The separating distributions. J. Econom. Theory 17(2):254–286.Crossref, Google Scholar
• Sharpe WF (1964) Capital asset prices: A theory of market equilibrium under conditions of risk. J. Finance 19(3):425–442.Google Scholar
• Tibshirani R (1996) Regression shrinkage and selection via the lasso. J. Roy. Statist. Soc. B 58(1):267–288.Crossref, Google Scholar
• Velu R, Zhou G (1999) Testing multi-beta asset pricing models. J. Empirical Finance 6(3):219–241.Crossref, Google Scholar
• Wold H (1966) Estimation of principal component and related models by iterative least squares. Krishnaiah PR, ed. Multivariate Analysis (Academic Press, New York), 391–420.Google Scholar
• Zhou G (1994) Analytical GMM tests: Asset pricing with time-varying risk premiums. Rev. Financial Stud. 7(4):687–709.Crossref, Google Scholar