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Using Bayesian variable selection methods to choose style factors in global stock return models
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Hall, Anthony D., Hwang, Soosung and Satchell, S. (Stephen) (2000) Using Bayesian variable selection methods to choose style factors in global stock return models. Working Paper. University of Warwick: Warwick Business School Financial Econometrics Research Centre. (Working Papers Series).
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Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
Abstract
This paper applies Bayesian variable selection methods from the statistics literature to give guidance in the decision to include/omit factors in a global (linear factor) stock return model. Once one has accounted for country and sector, it is possible to see which style or styles best explains current asset returns. This study does not find compelling evidence for global styles as useful explanatory factors, once country and sector have been accounted for.
| Item Type: | Working or Discussion Paper (Working Paper) |
|---|---|
| Subjects: | H Social Sciences > HG Finance Q Science > QA Mathematics |
| Divisions: | Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School |
| Library of Congress Subject Headings (LCSH): | Bayesian statistical decision theory, Stocks -- Rate of return, Options (Finance) |
| Series Name: | Working Papers Series |
| Publisher: | Warwick Business School Financial Econometrics Research Centre |
| Place of Publication: | University of Warwick |
| Date: | 12 June 2000 |
| Volume: | Vol.1999 |
| Number: | No.1 |
| Status: | Not Peer Reviewed |
| Access rights to Published version: | Open Access |
| Funder: | Institute for Quantitative Investment and Research (Great Britain) (INQUIRE) |
| References: | Arshanapalli, B., T. D. Coggin, and J. Doukas, 1998. Multifactor Asset Pricing Analysis of International Value Investment Strategies. Journal of Portfolio Management 24(4), 10-23. Capaul, C., I. Rowley, and W. F. Sharpe, 1993. International Value and Growth Stock Returns. Financial Analysts Journal, January-February, 27-36. Fama, E. F., and K. R. French, 1998. Value versus Growth: The International Evidence. Journal of Finance 53(6), 1975-1999. Geisser, S., 1965. A Bayes Approach for Combining Correlated Estimates. Journal of American Statistical Association 60, 602-607. Heston, S. L. and K. G. Rouwenhorst, 1995. Industry and Country Effects in International Stock Returns. Journal of Portfolio Management 21, 53-58. Huberman, G., A. Shmuel, and R. F. Stambaugh, 1987. Mimicking Portfolios and Exact Arbitrage Pricing. Journal of Finance 42, 1-10. Kuo, G. W. and S. E. Satchell, 1998. Global Equity Styles and Industry Effects: Portfolio Construction via Dummy Variables. DAE Working Paper #9807, Department of Applied Economics, Cambridge University. Lehman, B. N. and D. M. Modest, 1988. The Empirical Foundations of the Arbitrage Pricing Theory. Journal of Financial Economics 21(2), 213-54. O’Hagan, A., 1995. Fractional Bayes Factors for Model Comparison. Journal of Royal Statistical Association, Series B 57, 99-138. Smith, M. and R. Kohn, 1996. Nonparametric Regression via Bayesian Variable Selection. Journal of Econometrics 75, 317-344. Smith, M. and R. Kohn, 1998. Nonparametric Seemingly Unrelated Regression. Mimeo, Australian Graduate School of Management, Sydney, Australia. |
| URI: | http://wrap.warwick.ac.uk/id/eprint/1847 |
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