Abstract
Different models have tried to improve the Capital Asset Pricing Model findings, on the basis that different factors can affect asset return. This paper examines a series of explanatory factors, broader than those explained by traditional theory, to see whether they are able to more accurately explain the returns. Should the previous point be confirmed, we must consider that the risk of an asset depends on multiple factors, rather than the few that are usually identified in the literature. Even though more than 300,000 factors are examined in this paper, the results show that in recent years just 87 factors are able to fully explain the returns of 4,500 companies in the 15 European countries examined. Our analysis also shows that business and macroeconomic, rather than financial factors, are those that heavily bear on asset returns; and that factors that affect asset return, either only positively or only negatively, do not exist. However, the same factor can affect some companies positively and others negatively. Thus, since not all firms are always sensitive to the same factors, there is the possibility to further decrease risk in proportion to return, through a factor-based risk optimisation process.
Additional information
Notes on contributors
Mauro Andriotto
Mauro ANDRIOTTO is a researcher at the Department of Finance at Bocconi University and researcher for the Research Centre on Sustainability and Value (CReSV) at Bocconi University. His interests cover themes of corporate finance, asset pricing and asset allocation, risk analysis, financial engineering.
Emanuele Teti
Emanuele TETI is Adjunct Professor of financial management at Bocconi University, Milan, and professor at SDA Bocconi School of Management. He is senior researcher for the Research Centre on Sustainability and Value (CReSV) at Bocconi University. He has published different papers in peerreviewed Journals on a wide range of subjects concerning financial management, cultural economics, entrepreneurship, market functioning, sustainable development.