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- Title
Do Factor Models Explain Breaks in the Distribution of Equity Returns?
- Authors
Lleo, Sébastien; Ziemba, William T.; Li, Jessica
- Abstract
This article examines the relationship between factor models and structural breaks in the distribution of equity returns. It finds that factor models were effective in explaining changepoints in equity returns until the mid-1990s, but their explanatory power has since declined. The article suggests the use of statistical machine learning techniques to improve model accuracy and trading opportunities. It also discusses the implications of factor models in investment strategies and risk management, emphasizing the importance of considering changepoints and implementing changepoint detection algorithms. Understanding and addressing changepoints can enhance model estimation, protect portfolios, and improve trading strategies.
- Subjects
MUTUAL funds; LARGE capitalization stocks; RATE of return on stocks; TIME series analysis; ECONOMIC statistics; STATISTICAL learning; GROWTH stocks; RATE of return
- Publication
Journal of Portfolio Management, 2024, Vol 50, Issue 3, p111
- ISSN
0095-4918
- Publication type
Article
- DOI
10.3905/jpm.2023.1.568