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Estimating Asset Pricing Factors with RP-PCA by linyiqian501 is a document available to read on EtoBox.
The paper introduces a new method called risk-premium PCA (RP-PCA) for estimating latent asset pricing factors that effectively explain both the time series and cross-section of stock returns. RP-PCA outperforms traditional principal component analysis (PCA) by detecting weak factors with high Sharpe ratios and significantly reducing pricing errors. The empirical results reveal that RP-PCA identifies five economically meaningful factors that capture the majority of variation in characteristic-sorted portfol
- Author
- linyiqian501
- Language
- EN