We consider the estimation methods for the rank of a beta matrix corresponding to a multifactor model and study which method would be appropriate for data with a large number of assets. Our simulation results indicate that a restricted version of Cragg and Donald's (1997) Bayesian Information...

This paper analyzes the finite-sample performance of the two-pass (TP) estimators of factor risk prices when betas have high cross-sectional correlations (Multicollinear) and when betas have small cross-sectional variations (Invariant). Our Monte Carlo simulations, calibrated using actual...

Under the APT framework and the assumption that the market portfolio is well-diversified, if not mean-variance efficient, the common factors in raw-returns are the market return plus the common factors in the space of excess-returns over the market return. This explains why the market betas fail...