The reliability of traditional asset pricing tests depends on: (1) correlations between asset returns and factors; (2) the time-series sample size T compared to the number of assets N. For macro-risk factors, like consumption growth, (1)-(2) are often such that traditional tests cannot be...

Mimicking portfolios for factors are often used in asset pricing studies. Current practice has generally ignored the impact of estimation errors on the weights of the mimicking portfolios. We show that such a practice can lead to gross understatement of the standard errors of the estimated risk...

We propose a novel statistic to test the rank of a matrix. The rank statistic overcomes deficiencies of existing rank statistics, like: a Kronecker covariance matrix for the canonical correlation rank statistic of Anderson [Annals of Mathematical Statistics (1951), 22, 327–351] sensitivity to...