Abstract
We analyze the size and power of a large number of “robust” asset pricing tests, investigating the hypothesis that the price of risk of a candidate factor is equal to zero. Different from earlier studies, our bootstrap approach puts all tests on an equal footing and focuses on sample sizes comparable to standard applications in asset pricing research. Thus, our paper provides guidance for researchers about which method to use. We find that the classic Fama-MacBeth/Shanken approach rarely over-rejects useless factors and provides a reasonable balance between size and power. In contrast, some of the “robust” methods suffer from poor power in realistic sample sizes, especially in situations where the asset pricing model is mildly misspecified.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
