Connor, Gregory and Korajczyk, Robert (1993) A Test for the Number of Factors in an Approximate Factor Model. The Journal of Finance, 45 (4). pp. 1263-1291. ISSN 0022-1082
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Abstract
An important issue in applications of multifactor models of asset returns is the
appropriate number of factors. Most extant tests for the number of factors are valid
only for strict factor models, in which diversifiable returns are uncorrelated across
assets. In this paper we develop a test statistic to determine the number of factors
in an approximate factor model of asset returns, which does not require that
diversifiable components of returns be uncorrelated across assets. We find evidence
for one to six pervasive factors in the cross-section of New York Stock Exchange and
American Stock Exchange stock returns.
Item Type: | Article |
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Keywords: | Approximate Factor Model; |
Academic Unit: | Faculty of Social Sciences > Economics, Finance and Accounting |
Item ID: | 3532 |
Depositing User: | Gregory Connor |
Date Deposited: | 12 Mar 2012 16:13 |
Journal or Publication Title: | The Journal of Finance |
Publisher: | American Finance Association |
Refereed: | Yes |
Related URLs: | |
URI: | https://mural.maynoothuniversity.ie/id/eprint/3532 |
Use Licence: | This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here |
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