Abstract
We examine which factor model best captures systematic return covariation by focusing on the economic implications for portfolio risk control. The pairwise variance equality test and the model confidence set procedure suggest that the Fama and French (2015) five-factor model, the Barillas and Shanken (2018) six-factor model, and the Fama and French (2018) six-factor model are the top performers for the factor model-implied minimum risk portfolios in the out-of-sample. When it comes to the minimum tracking error portfolios, the Barillas and Shanken (2018) six-factor model and the Fama and French (2018) six-factor model are the overall winners in the horse race.
Original language | English |
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Article number | 102865 |
Journal | Journal of International Money and Finance |
Volume | 136 |
Early online date | 3 May 2023 |
DOIs | |
Publication status | Published - Sept 2023 |
Keywords
- Asset pricing model
- Factor model
- Model evaluation
- Out-of-sample
- Portfolio selection