Factor Zoo (.zip)
Alexander Swade (Lancaster University) et al.
October 2023
The number of factors allegedly driving the cross-section of stock returns has grown steadily over time. We explore how much this ‘factor zoo’ can be compressed, focusing on explaining the available alpha rather than the covariance matrix of factor returns. Our findings indicate that about 15 factors are enough to span the entire factor zoo. This evidence suggests that many factors are redundant but also that merely using a handful of factors, as in common asset pricing models, is insufficient. While the selected factor styles remain persistent, the specific style representatives vary over time, underscoring the importance of continuous factor innovation.
Daily Archives: December 21, 2023
Macro Briefing: 21 December 2023
* Small group of Wall Street economists still see US recession lurking, but…
* Fear of recession is starting to fade for Americans
* Warner Bros in merger talks with Paramount
* 5 portfolio lessons from 2023, including: Don’t Fight the Fed
* US existing home sales rise in November–first gain in 5 months
* US Consumer Confidence Index rebounds sharply in December: