Gaetan Bakalli, Stéphane Guerrier, Olivier Scaillet
arXiv 1 Aug 2022 · Econometrics · publishedJournal of Econometrics (2023) · 7 citations (OpenAlex)
arXiv:2208.00972 · PDF · DOI · OpenAlex · Extracted main text
We develop a penalized two-pass regression with time-varying factor loadings. The penalization in the first pass enforces sparsity for the time-variation drivers while also maintaining compatibility with the no-arbitrage restrictions by regularizing appropriate groups of coefficients. The second pass delivers risk premia estimates to predict equity excess returns. Our Monte Carlo results and our empirical results on a large cross-sectional data set of US individual stocks show that penalization without grouping can yield to nearly all estimated time-varying models violating the no-arbitrage restrictions. Moreover, our results demonstrate that the proposed method reduces the prediction errors compared to a penalized approach without appropriate grouping or a time-invariant factor model.
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The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.
| Reference | Intensity | Mentions | Sections | Main text | |
|---|---|---|---|---|---|
| 1 | Chaieb, I., Langlois, H., and Scaillet, O (2021) Factors and risk premia in individual international stock returns self | 1.000 | 7 | 3 | 100% |
| 2 | Fama, E. F. and French, K. R (2015) A five-factor asset pricing model | 1.000 | 5 | 4 | 100% |
| 3 | Gagliardini, P., Ossola, E., and Scaillet, O (2016) Time-varying risk premium in large cross-sectional equity data sets self | 0.956 | 24 | 5 | 88% |
| 4 | Gagliardini, P., Ossola, E., and Scaillet, O (2020) Estimation of large dimensional conditional factor models in finance self | 0.928 | 4 | 3 | 100% |
| 5 | Percival, D (2012) Theoretical properties of the overlapping groups lasso | 0.899 | 11 | 3 | 73% |
| 6 | Jacob, L., Obozinski, G., and Vert, J.-P (2009) Group lasso with overlap and graph lasso | 0.874 | 5 | 2 | 100% |
| 7 | Freyberger, J., Neuhierl, A., and Weber, M (2020) Dissecting characteristics nonparametrically | 0.811 | 4 | 2 | 100% |
| 8 | Yuan, M. and Lin, Y (2006) Model selection and estimation in regression with grouped variables | 0.737 | 3 | 2 | 100% |
| 9 | Zou, H (2006) The adaptive lasso and its oracle properties | 0.737 | 3 | 2 | 100% |
| 10 | Carhart, M. M (1997) On persistence in mutual fund performance | 0.644 | 2 | 2 | 100% |
Showing the top 10 of 50 scored citations.
arXiv econ.EM papers that cite this one, ranked by how heavily they lean on it.
| Citing paper | Intensity | Mentions | Sections | |
|---|---|---|---|---|
| 1 | Overparametrized models with posterior drift | 0.405 | 1 | 1 |