%0 Generic %1 feng2019taming %A Feng, Guanhao %A Giglio, Stefano %A Xiu, Dacheng %D 2019 %K lasso pca sdf zoo-factor %T Taming the Factor Zoo: A Test of New Factors %X We propose a model-selection method to systematically evaluate the contribution to asset pricing of any new factor, above and beyond what a high-dimensional set of existing factors explains. Our methodology explicitly accounts for potential model-selection mistakes, unlike the standard approaches that assume perfect variable selection, which rarely occurs in practice and produces a bias due to the omitted variables. We apply our procedure to a set of factors recently discovered in the literature. While most of these new factors are found to be redundant relative to the existing factors, a few | such as protability | have statistically signicant explanatory power beyond the hundreds of factors proposed in the past. In addition, we show that our estimates and their signicance are stable, whereas the model selected by simple LASSO is not.

@preprint{feng2019taming, abstract = {We propose a model-selection method to systematically evaluate the contribution to asset pricing of any new factor, above and beyond what a high-dimensional set of existing factors explains. Our methodology explicitly accounts for potential model-selection mistakes, unlike the standard approaches that assume perfect variable selection, which rarely occurs in practice and produces a bias due to the omitted variables. We apply our procedure to a set of factors recently discovered in the literature. While most of these new factors are found to be redundant relative to the existing factors, a few | such as protability | have statistically signicant explanatory power beyond the hundreds of factors proposed in the past. In addition, we show that our estimates and their signicance are stable, whereas the model selected by simple LASSO is not.}, added-at = {2019-02-26T17:32:41.000+0100}, author = {Feng, Guanhao and Giglio, Stefano and Xiu, Dacheng}, biburl = {https://www.bibsonomy.org/bibtex/238da59832c261a6b3715324045c136ad/antoinefalck}, interhash = {bdbc29b4000aff318d5919643aabf878}, intrahash = {38da59832c261a6b3715324045c136ad}, keywords = {lasso pca sdf zoo-factor}, timestamp = {2019-03-06T20:45:11.000+0100}, title = {Taming the Factor Zoo: A Test of New Factors}, year = 2019 }