Higher-Order Asset Pricing Factors via Forward Selection Fama-MacBeth Regression
通过前向选择 Fama–MacBeth 回归识别高阶资产定价因子
We show that the higher-order terms and interactions of the common sparse linear factors are significantly priced in the cross-section of equity returns. A higher-order model with only a small number of selected higher-order terms from six widely used factors outperforms traditional benchmarks both in-sample and out-of-sample. It also substantially reduces the alphas of the extensive factor zoo, suggesting that the pricing power of many zoo factors is attributable to their…