Shrinking Factor Dimension : A Reduced-Rank Approach

We apply a reduced-rank approach to reduce a large number of observable factors to a few parsimonious ones. Out of 70 factor proxies, we find that the best five combinations seem adequate and outperform the Fama-French (2015) five factors for pricing industry portfolios as expected. However, they do not improve much for pricing individual stocks. Our results suggest that new factors are wanted to reduce the pricing errors at the firm level

Year of publication:	2020
Authors:	Huang, Dashan
Other Persons:	Li, Jiaen (contributor) ; Zhou, Guofu (contributor)
Publisher:	[2020]: [S.l.] : SSRN

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