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One Factor to Bind the Cross-Section of Returns / Nicola Borri, Denis Chetverikov, Yukun Liu, Aleh Tsyvinski.
- Format:
- Book
- Author/Creator:
- Borri, Nicola.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w32365.
- NBER working paper series no. w32365
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2024.
- Summary:
- We propose a new non-linear single-factor asset pricing model. Despite its parsimony, this model represents exactly any non-linear model with an arbitrary number of factors and loadings - a consequence of the Kolmogorov-Arnold representation theorem. It features only one pricing component comprising a nonparametric link function of the time-dependent factor and factor loading that we jointly estimate with sieve-based estimators. Using 171 assets across major classes, our model delivers superior cross-sectional performance with a low-dimensional approximation of the link function. Most known finance and macro factors become insignificant controlling for our single-factor.
- Notes:
- Print version record
- April 2024.
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