Which Alpha? / Francisco Barillas, Jay Shanken.

By:

Barillas, Francisco

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w21698.Publication details: Cambridge, Mass. National Bureau of Economic Research 2015.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: A common approach to comparing asset pricing models with traded factors involves a competition between models in pricing test-asset returns. We find that such practice, while seemingly reasonable, cannot be relied on to determine which is the superior model for several widely accepted criteria including statistical likelihood, Sharpe ratios and a modified HJ distance. All that matters for model comparison is the extent to which each model is able to price the factors in the other model. Given this information, test assets are actually irrelevant, whether the models are nested or non-nested.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w21698 (Browse shelf(Opens below))	Not For Loan

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November 2015.

A common approach to comparing asset pricing models with traded factors involves a competition between models in pricing test-asset returns. We find that such practice, while seemingly reasonable, cannot be relied on to determine which is the superior model for several widely accepted criteria including statistical likelihood, Sharpe ratios and a modified HJ distance. All that matters for model comparison is the extent to which each model is able to price the factors in the other model. Given this information, test assets are actually irrelevant, whether the models are nested or non-nested.