Related papers: The Corporate Bond Factor Replication Crisis
Recent studies document strong empirical support for multifactor models that aim to explain the cross-sectional variation in corporate bond expected excess returns. We revisit these findings and provide evidence that common factor pricing…
The replication crisis in social and behavioral sciences has raised concerns about the reliability and validity of empirical studies. While research in the literature has explored contributing factors to this crisis, the issues related to…
We analyze 18 quadrillion models for the joint pricing of corporate bond and stock returns. Strikingly, we find that equity and nontradable factors alone suffice to explain corporate bond risk premia once their Treasury term structure risk…
This paper presents an empirical analysis of the capital asset pricing model using trading data for the Chinese A-share market from 2000 to 2019. Firstly, the standard CAPM is tested using a Fama-MacBetch regression and although the results…
The asset pricing literature emphasizes factor models that minimize pricing errors but overlooks unselected candidate factors that could enhance the performance of test assets. This paper proposes a framework for factor model selection and…
Alpha factor mining aims to discover investment signals from the historical financial market data, which can be used to predict asset returns and gain excess profits. Powerful deep learning methods for alpha factor mining lack…
We address challenges in variable selection with highly correlated data that are frequently present in finance, economics, but also in complex natural systems as e.g. weather. We develop a robustified version of the knockoff framework,…
We find that the CAPM fails to explain the small firm effect even if its non-parametric form is used which allows time-varying risk and non-linearity in the pricing function. Furthermore, the linearity of the CAPM can be rejected, thus the…
Machine learning is facing a 'reproducibility crisis' where a significant number of works report failures when attempting to reproduce previously published results. We evaluate the sources of reproducibility failures using a meta-analysis…
The CAPM regression is typically interpreted as if the market return contemporaneously \emph{causes} individual returns, motivating beta-neutral portfolios and factor attribution. For realized equity returns, however, this interpretation is…
We apply the knockoff procedure to factor selection in finance. By building fake but realistic factors, this procedure makes it possible to control the fraction of false discovery in a given set of factors. To show its versatility, we apply…
We discuss the foundations of factor or regression models in the light of the self-consistency condition that the market portfolio (and more generally the risk factors) is (are) constituted of the assets whose returns it is (they are)…
We introduce a simple and tractable methodology for estimating semiparametric conditional latent factor models. Our approach disentangles the roles of characteristics in capturing factor betas of asset returns from ``alpha.'' We construct…
In an era where large language models (LLMs) are increasingly integrated into a wide range of everyday applications, research into these models' behavior has surged. However, due to the novelty of the field, clear methodological guidelines…
We study the data-generating processes for factors expressed in return differences, which the literature on time-series asset pricing seems to have overlooked. For the factors' data-generating processes or long-short zero-cost portfolios, a…
We study factor models that combine latent factors with firm characteristics and propose a new framework for modeling, estimating, and inferring pricing errors. Following Zhang (2024), our approach decomposes mispricing into two distinct…
Today's best language models still struggle with hallucinations: factually incorrect generations, which impede their ability to reliably retrieve information seen during training. The reversal curse, where models cannot recall information…
In this paper is proposed a 2 factor structural PDE model of pricing puttable bond with credit risk and derived the analytical pricing formula. To this end, first, a 2 factor structural (PDE) model of pricing zero coupon bond with credit…
In this paper, we use replica analysis to investigate the influence of correlation among the return rates of assets on the solution of the portfolio optimization problem. We consider the behavior of the optimal solution for the case where…
We derive simple return models for several classes of bond portfolios. With only one or two risk factors our models are able to explain most of the return variations in portfolios of fixed rate government bonds, inflation linked government…