266
Views
0
CrossRef citations to date
0
Altmetric
Research Papers

Cross-section without factors: a string model for expected returns

, &
Received 26 Oct 2023, Accepted 11 May 2024, Published online: 11 Jun 2024

References

  • Acemoglu, D., Carvalho, V.M., Ozdaglar, A. and Tahbaz-Salehi, A., The network origins of aggregate fluctuations. Econometrica, 2012, 80, 1977–2016.
  • Al-Najjar, N.I., Factor analysis and arbitrage pricing in large asset economies. J. Econ. Theory., 1998, 78, 231–262.
  • Allen, F. and Babus, A., Networks in finance. In Network-Based Strategies and Competencies, edited by P. Kleindorfer and J. Wind, pp. 367–382, 2009 (Wharton School Publishing: Philadelphia, PA).
  • Bakshi, G., Kapadia, N. and Madan, D., Stock return characteristics, skew laws, and the differential pricing of individual equity options. Rev. Financial Stud., 2003, 16, 101–143.
  • Banz, R., The relationship between return and market value of common stocks. J. Financ. Econ., 1981, 9, 3–18.
  • Barrot, J.-N. and Sauvagnat, J., Input specificity and the propagation of idiosyncratic shocks in production networks. Q. J. Econ., 2016, 131, 1543–1592.
  • Billio, M., Caporin, M., Panzica, R. and Pelizzon, L., The impact of network connectivity on factor exposures, asset pricing and portfolio diversification.” SAFE Working Paper Series 166, Leibniz Institute for Financial Research SAFE, 2017.
  • Billio, M., Getmansky, M., Lo, A.W. and Pelizzon, L., Econometric measures of connectedness and systemic risk in the finance and insurance sectors. J. Financ. Econ., 2012, 104, 535–559.
  • Britten-Jones, M. and Neuberger, A., Option prices, implied price processes, and stochastic volatility. J. Finance, 2000, 55, 839–866.
  • Buraschi, A., Kosowski, R. and Trojani, F., When there is no place to hide: Correlation risk and the cross-section of hedge fund returns. Rev. Financial Stud., 2014, 27, 581–616.
  • Buss, A. and Vilkov, G., Measuring equity risk with option-implied correlations. Rev. Financial Stud., 2012, 25, 3113–3140.
  • Campbell, J., Hilscher, J. and Szilagyi, J., In search of distress risk. J. Finance, 2008, 63, 2899–2939.
  • Carhart, M., On persistence of mutual fund performance. J. Finance, 1997, 52, 57–82.
  • Chan, K. and Chen, N., Structural and return characteristics of small and large firms. J. Finance, 1991, 46, 467–1484.
  • Chan, K., Chen, N. and Hsieh, D., An exploratory investigation of the firm size effect. J. Financ. Econ., 1985, 14, 451–471.
  • Colla, P. and Mele, A., Information linkages and correlated trading. Rev. Financial Stud., 2010, 23, 203–246.
  • Corradi, V., Distaso, W. and Mele, A., Macroeconomic determinants of stock volatility and volatility premiums. J. Monet. Econ., 2013, 60, 203–220.
  • Dobelman, J.A., Kang, H.B. and Park, S.W., WRDS index data extraction methodology. Technical Report TR-2014-01, Rice University, Department of Statistics, 2014.
  • Driessen, J., Maenhout, P. and Vilkov, G., The price of correlation risk: Evidence from equity options. J. Finance, 2009, 64, 1377–1406.
  • Driessen, J., Maenhout, P. and Vilkov, G., Option-implied correlations and the price of correlation risk. Working paper INSEAD, 2005.
  • Dumas, B., The meaning of the implicit volatility function in case of stochastic volatility. HEC Working Paper, 1995.
  • Elton, E.J. and Gruber, M.J., Estimating the dependence structure of share prices. J. Finance, 1973, 28, 1203–1232.
  • Engle, R., Anticipating Correlations, 2009 (Princeton University Press: Princeton).
  • Fama, E.F. and French, K., The cross-section of expected stock returns. J. Finance, 1992, 47, 427–465.
  • Fama, E.F. and French, K., Common risk factors in the returns on stocks and bonds. J. Financ. Econ., 1993, 33, 3–56.
  • Fama, E.F. and French, K., Size and book-to-market factors in earnings and returns. J. Finance, 1995, 50, 131–155.
  • Fama, E.F. and French, K., A five-factor asset pricing model. J. Financ. Econ., 2015, 116, 1–22.
  • Fama, E.F. and MacBeth, J.D., Risk, return, and equilibrium: empirical tests. J. Political Econ., 1973, 81, 607–636.
  • Faria, G., Kosowski, R. and Wang, T., The correlation risk premium: International evidence. J. Banking Finance, 2022, 136, 1–14.
  • Feng, G., Giglio, S. and Xiu, D., Taming the factor zoo: A test of new factors. J. Finance, 2020, 75, 1327–1370.
  • Gagliardini, P., Ossola, E. and Scaillet, O., Time-varying risk premium in large cross-sectional equity data sets. Econometrica, 2016, 84, 985–1046.
  • Goldstein, R.S., The term structure of interest rates as a random field. Rev. Financial Stud., 2000, 13, 365–384.
  • Harvey, C.R., Liu, Y. and Zhu, H., …and the cross-section of expected returns. Rev. Financial Stud., 2016, 29, 5–68.
  • Herskovic, B., Networks in production: Asset pricing implications. J. Finance, 2018, 73(4), 1785–1818.
  • Jagannathan, R. and Wang, W., The conditional CAPM and the cross-section of stock returns. J. Finance, 1996, 51, 3–53.
  • Karatzas, I. and Shreve, S.E., Brownian Motion and Stochastic Calculus, 1991 (Springer Verlag: New York).
  • Kennedy, D.P., The term structure of interest rates as a Gaussian random field. Math. Finance, 1994, 4, 247–258.
  • Kennedy, D.P., Characterizing Gaussian models of the term structure of interest rates. Math. Finance, 1997, 7, 107–118.
  • Lettau, M. and Ludvigson, S., Resurrecting the (C)CAPM: A cross-sectional test when risk premia are time-varying. J. Political Econ., 2001, 109, 1238–1287.
  • Mele, A., Asymmetric stock market volatility and the cyclical behavior of expected returns. J. Financ. Econ., 2007, 86, 446–478.
  • Mele, A., Financial Economics, 2022 (MIT Press: Cambridge, Mass).
  • Mele, A. and Obayashi, Y., The Price of Fixed Income Market Volatility, Springer Finance Series, 2015 (Springer Verlag: New York).
  • Mele, A., Obayashi, Y. and Shalen, C., Rate fears gauges and the dynamics of fixed income and equity volatilities. J. Banking Finance, 2015, 52, 256–265.
  • Menzly, L., Santos, T. and Veronesi, P., Understanding predictability. J. Political Econ., 2004, 112, 1–47.
  • Merton, R.C., Optimum consumption and portfolio rules in a continuous-time model. J. Econ. Theory., 1971, 3, 373–413.
  • Mueller, Ph., Stathopoulos, A. and Vedolin, A., International correlation risk. J. Financ. Econ., 2017, 126, 270–299.
  • Ozsoylev, H., Walden, J., Yavuz, D. and Bildik, R., Investor networks in the stock market. Rev. Financial Stud., 2014, 27, 1323–1366.
  • Ross, S.A., The arbitrage theory of capital asset pricing. J. Econ. Theory., 1976, 13, 341–360.
  • Santa-Clara, P. and Sornette, D., The dynamics of the forward interest rate curve with stochastic string shocks. Rev. Financial Stud., 2001, 14, 149–185.
  • Skinzi, V.D. and Refenes, A.-P.N., Implied correlation index: A new measure of diversification. J. Futures Markets, 2005, 25, 171–197.
  • Tsoulouvi, H., Essays on stochastic volatility and random-field models in finance. PhD Thesis, London School of Economics, 2005.