A0882
Title: Structural breaks and factor selection
Authors: Siddhartha Chib - Washington University in Saint Louis (United States) [presenting]
Abstract: A new approach is developed to select factors, allowing the set to change at multiple unknown break dates. In a six-factor model since 1963, a marked shift towards parsimonious models has been documented in the last two decades. Before 2005, either five or six factors were selected, but just two were selected thereafter. This finding offers a simple implication for the factor zoo literature: ignoring breaks detects additional factors that are no longer relevant. Moreover, all omitted factors are priced by the selected factors in every regime. Finally, the selected factors outperform popular factor models as an investment strategy
