Factor Failures: The Limitations and Pitfalls of Factor Models in Empirical Asset Pricing

Hitchen, Justin James

Factor Failures: The Limitations and Pitfalls of Factor Models in Empirical Asset Pricing

Hitchen, Justin James

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Publication Type:: Thesis
Issue Date:: 2024

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Field	Value	Language
dc.contributor.author	Hitchen, Justin James
dc.date.accessioned	2024-04-23T01:26:40Z
dc.date.available	2024-04-23T01:26:40Z
dc.date.issued	2024
dc.identifier.uri	http://hdl.handle.net/10453/178244
dc.description	University of Technology Sydney. Faculty of Business.	en_US.UTF-8
dc.description.abstract	Factor return models are widely used throughout finance in both academic research and industry practice. They are one of the primary tools for evaluating the performance (risk and risk-adjusted returns) of an asset or investment strategy. This thesis examines econometric inconsistencies between the parameter estimates obtained via common applications of factor models and their interpretation by academics and practitioners. We demonstrate that common estimation techniques are plagued by material estimation biases that severely diminish the usefulness of the parameters estimated. As consequence, practitioners are making misguided investment evaluations whilst academics may also be drawing invalid inferences in their own research.	en_US.UTF-8
dc.format	Thesis (PhD)
dc.language.iso	en_US	en_US.UTF-8
dc.relation	https://opus.lib.uts.edu.au/bitstream/10453/178244/1/thesis.pdf
dc.rights	info:eu-repo/semantics/openAccess
dc.rights	The author owns the copyright in this thesis including all reproduction and reuse rights for the work. The work may not be altered without the permission of the copyright owner. Attribution is essential when quoting or paraphrasing from this thesis.
dc.rights	© 2024 Justin James Hitchen
dc.rights	au.edu.uts.lib/nph
dc.title	Factor Failures: The Limitations and Pitfalls of Factor Models in Empirical Asset Pricing	en_US.UTF-8
dc.type	Thesis
utslib.copyright.status	open_access	*

Abstract:

Factor return models are widely used throughout finance in both academic research and industry practice. They are one of the primary tools for evaluating the performance (risk and risk-adjusted returns) of an asset or investment strategy. This thesis examines econometric inconsistencies between the parameter estimates obtained via common applications of factor models and their interpretation by academics and practitioners. We demonstrate that common estimation techniques are plagued by material estimation biases that severely diminish the usefulness of the parameters estimated. As consequence, practitioners are making misguided investment evaluations whilst academics may also be drawing invalid inferences in their own research.

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http://hdl.handle.net/10453/178244