A1181
Title: On the existence of a true mutual fund factor model
Authors: Nikolas Topaloglou - Athens University of Economics and Business (Greece) [presenting]
Argyro Kofina - Athens University of Economics and Business (Greece)
Ioannis Psaradelis - University of St Andrews (United Kingdom)
Abstract: A mutual fund factor model is introduced from a large set of 168 factors, including characteristics found to be significant in explaining stock returns, leading factors explaining mutual fund returns and macroeconomic variables. To do so, a stochastic dominance approach is used that extends the mean-variance framework underlying the usual APT tests of exact pricing to include fairly general sets of preferences for the arbitrageurs operating in the economy. The proposed factor model explains mutual fund returns better than all leading factors and a Lasso-based factor model when using both parametric, non-parametric, and machine learning tests. The results are significant both in-sample and out-of-sample.
