What does this research mean for the field?

Among major asset pricing factor models, the Stambaugh and Yuan (2016) 4-factor model is superior in time-series performance, whereas the Hou et al. (2015) q-factor, Fama and French (2015) 4- and 5-factor, and Barillas and Shanken (2018) 6-factor models perform equally well in cross-sectional comparisons. Novelty: ClaimNovelty.INCREMENTAL. Consensus alignment: ConsensusAlignment.NEUTRAL.

September 14, 2018Open Access

Best of the Best: A Comparison of Factor Models

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Abstract

We compare major factor models and find that the Stambaugh and Yuan (2016) 4-factor model is the overall winner in the time-series domain. The Hou, Xue, and Zhang (2015) q -factor model takes second place and the Fama and French (2015) 5-factor model and the Barillas and Shanken (2018) 6-factor model jointly take third place. The pairwise cross-sectional R 2 and the multiple model comparison tests show that the Hou et al. (2015) q -factor model, the Fama and French (2015) 5-factor and 4-factor models, and the Barillas and Shanken (2018) 6-factor model take equal first place in the horse race.

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