This is a summary of links featured on Quantocracy on Wednesday, 05/24/2017. To see our most recent links, visit the Quant Mashup. Read on readers!
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How Many Assets Are Needed To Test a K-Factor Model? [Alex Chinco]Imagine youre a financial economist who thinks that some risk factor,{\color{white}i}f_t, explains the cross-section of expected returns. And, you decide to test your hunch. First, you regress the realized returns of N different assets on{\color{white}i}f_t to estimate each assets exposure to the risk factor, \tilde{b}_n: \begin{equation*} r_{n,t} = \tilde{a}_n + \tilde{b}_n \cdot f_t +
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The Value Premium: Risk or Mispricing? [Alpha Architect]One of the great debates in finance is whether the source of the value premium is risk-based or a behavioral anomaly. In our book, Your Complete Guide to Factor-Based Investing, my co-author Andrew Berkin and I present the evidence showing that there are good arguments on both sides. Thus, its likely the answer isnt black or white. For example, we show that the academic research