Which factor model? A systematic return covariation perspective

Shamim Ahmed, Ziwen Bu, Lazaros Symeonidis, Daniel Tsvetanov

Research output: Contribution to journalArticlepeer-review

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 languageEnglish
Article number102865
JournalJournal of International Money and Finance
Volume136
Early online date3 May 2023
DOIs
Publication statusPublished - Sep 2023

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