Any Axes Are Allowed: A Characteristic-Axis Integral Diagnosis of Factor Models

Useong Shin

Any Axes Are Allowed: A Characteristic-Axis Integral Diagnosis of Factor Models

General Finance 2026-07-06 v1 Computational Finance Pricing of Securities Statistical Finance

Authors: Useong Shin

Abstract

This paper extends the cap-axis integral diagnostic to general characteristic axes and measures factor-model pricing errors as bridge-alpha curves. A predetermined characteristic order generates prefix portfolios; subtracting equal-exposure aggregate portfolios gives zero-investment bridges indexed by cutoff p. The null is not a pointwise alpha test on selected deciles, but a zero-curve restriction on the restricted subspace generated by the characteristic order. In 1967-2024 CRSP data, value, profitability, investment, and momentum axes show systematic sign reversals. HML and CMA overcorrect significantly, whereas RMW and UMD largely flatten their axes. Axis-level pricing errors are nearly orthogonal to maximum-Sharpe gains.

Keywords

factor models characteristic-axis integral bridge-alpha curves pricing errors zero-investment portfolios CRSP data sign reversals

Cite

@article{arxiv.2607.05091,
  title  = {Any Axes Are Allowed: A Characteristic-Axis Integral Diagnosis of Factor Models},
  author = {Useong Shin},
  journal= {arXiv preprint arXiv:2607.05091},
  year   = {2026}
}