LONG-RUN EVIDENCE USING MULTIFACTOR ASSET PRICING MODELS

We study the pricing factor structure of Italian equity returns. Using 25 years of data, we focus on a classical four factors model. A two step empirical analysis is provided where first we estimate an unrestricted multi-factor model to test if there is any evidence of misspecification. Then, we estimate the restricted model through the Generalized Methods of Moments (GMM). We find that the market premium and the size premium for stocks are confirmed for a domestic Italian investor. On the contrary, weak evidence is found for the value premium. Finally, we highlight, that augmenting the model with a momentum factor may at least partially improve its performance.