2020/01/24 by Guanhao Feng, Stefano Giglio, Dacheng Xiu · 4 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Housing Market and Economics #Financial Markets and Investment Strategies #Corporate Finance and Governance
paper · doi:10.1111/jofi.12883
openalex publication_date 2020/01/24 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
ABSTRACT We propose a model selection method to systematically evaluate the contribution to asset pricing of any new factor, above and beyond what a high‐dimensional set of existing factors explains. Our methodology accounts for model selection mistakes that produce a bias due to omitted variables, unlike standard approaches that assume perfect variable selection. We apply our procedure to a set of factors recently discovered in the literature. While most of these new factors are shown to be redundant relative to the existing factors, a few have statistically significant explanatory power beyond the hundreds of factors proposed in the past.