Performance Evaluation of Non-Normal Portfolios

Best of the Best: A Comparison of Factor Models

“…Although these models are merely approximations of reality (Barillas and Shanken (2018), Gospodinov, Kan, and Robotti (2013), Kan and Robotti (2009), and Kan, Robotti, and Shanken (2013)), it is important from an academic and practitioner perspective to know which model provides the best overall description of asset returns. For example, there is ample evidence, both empirical and anecdotal, that portfolio managers most often use the capital asset pricing model and a variety of multifactor models to compute expectations of returns (see, among others, Ang (2014), Brealey, Myers, and Allen (2016), Fischer and Wermers (2012), Gitman and Mercurio (1982), Graham and Harvey (2001), Grinold and Kahn (1995), and Jagannathan and Meier (2002)). In relation to this, Fama and French (2016) compare the performance of the recently proposed 5-factor model of Fama and French (2015), along with models that use subsets of its factors.…”

“…Importantly, the empirical results in this article also contribute to the growing literature on assessing the performance of asset pricing models, and have valuable implications for practical applications, including capital budgeting, equity valuation, quantitative investment management, and fund performance evaluation. For example, the Fama and French (1993) and Carhart (1997) 4-factor model is the current workhorse model used to evaluate mutual fund performance (see, among others, Ang (2014), Fama and French (2010), and Fischer and Wermers (2012)). Given our cross-sectional statistical evidence on the superior performance of the Hou et al (2015) q-factor model, the Fama and French (2015) 5-factor and 4-factor models, and the Barillas and Shanken (2018) 6-factor model, they can all be applied in this area.…”

The Investment CAPM

“…Asset management is a vast and important field (see Wermers 2012 andAng 2014 for reviews). Can the q-factor model help improve the measurement of mutual fund performance?…”

On the (almost) stochastic dominance of cryptocurrency factor portfolios and implications for cryptocurrency asset pricing

“…Since portfolio managers use the capital asset pricing model and a range of multifactor models to compute expected returns (Ahmed et al, 2019;Ang, 2014;Fischer & Wermers, 2012), understanding which pricing model provides more the accurate estimates is important for both academics and practitioners. For equities, Stambaugh and Yuan (2017) note the proliferation of studies identifying anomalies that violate the standard (pre-cryptocurrency) three-factor model and how, with parsimony a virtue, these anomalies are only rarely included as additional factors.…”