Global Factor Premiums

We examine 24 global factor premiums across the main asset classes via replication and new-sample evidence spanning 217 years of data. Replication yields ambiguous evidence within a unified testing framework with methods that account for p-hacking. The new-sample evidence reveals that the large majority of global factors are strongly present under conservative p-hacking perspectives, with limited out-of-sample decay of the premiums. Further, utilizing our deep sample, we find global factor premiums to be generally unrelated to market, downside, or macroeconomic risks. These results reveal strong global factor premiums that present a challenge to asset pricing theories.

[1]  Diego García.  Sentiment during Recessions: Sentiment during Recessions , 2013 .

[2]  Benjamin Golez,et al.  Four Centuries of Return Predictability , 2014 .

[3]  Jeffrey Pontiff,et al.  Does Academic Research Destroy Stock Return Predictability? , 2015 .

[4]  Thierry Post,et al.  Downside risk and asset pricing , 2004 .

[5]  Juhani T. Linnainmaa,et al.  The History of the Cross Section of Stock Returns , 2016 .

[6]  P. Harrison.  Similarities in the Distribution of Stock Market Price Changes between the Eighteenth and Twentieth Centuries , 1997 .

[7]  Tarun Chordia,et al.  Liquidity and Autocorrelations in Individual Stock Returns , 2005 .

[8]  Ying-Wong Cheung,et al.  On the purchasing power parity puzzle , 2000 .

[9]  Christopher D. Chambers,et al.  Redefine statistical significance , 2017, Nature Human Behaviour.

[10]  Lukas Menkhoff,et al.  Currency Value , 2015 .

[11]  L. Neal.  Integration of International Capital Markets: Quantitative Evidence from the Eighteenth to Twentieth Centuries , 1985, The Journal of Economic History.

[12]  Pedro Barroso,et al.  Beyond the Carry Trade: Optimal Currency Portfolios , 2012 .

[13]  James O. Berger,et al.  Rejection odds and rejection ratios: A proposal for statistical practice in testing hypotheses , 2015, Journal of mathematical psychology.

[14]  Zhi Da,et al.  Indexing and Stock Market Serial Dependence Around the World , 2017, Journal of Financial Economics.

[15]  Gideon Nave,et al.  Evaluating replicability of laboratory experiments in economics , 2016, Science.

[16]  E. Fama.  Term premiums in bond returns , 1984 .

[17]  Narasimhan Jegadeesh,et al.  Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency , 1993 .

[18]  Campbell R. Harvey.  Presidential Address: The Scientific Outlook in Financial Economics: Scientific Outlook in Finance , 2017 .

[19]  Richard H. Thaler,et al.  Anomalies: Foreign Exchange , 1990 .

[20]  Vijay S. Bawa,et al.  Abstract: Capital Market Equilibrium in a Mean-Lower Partial Moment Framework , 1977, Journal of Financial and Quantitative Analysis.

[21]  L. Neal.  The Integration and Efficiency of the London and Amsterdam Stock Markets in the Eighteenth Century , 1987, The Journal of Economic History.

[22]  Vincent A. Warther,et al.  The Delisting Bias in CRSP's Nasdaq Data and Its Implications for the Size Effect , 1999 .

[23]  Alan M. Taylor,et al.  Macrofinancial History and the New Business Cycle Facts , 2016, NBER Macroeconomics Annual.

[24]  E. Fama,et al.  Risk, Return, and Equilibrium: Empirical Tests , 1973, Journal of Political Economy.

[25]  Long-Only Style Investing: Don’t Just Mix, Integrate , 2017 .

[26]  E. Fama,et al.  Common risk factors in the returns on stocks and bonds , 1993 .

[27]  Yao Hua Ooi,et al.  Time Series Momentum , 2011 .

[28]  John M. Griffin,et al.  Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole , 2001 .

[29]  Campbell R. Harvey,et al.  The Strategic and Tactical Value of Commodity Futures , 2006 .

[30]  Tyler Shumway.  The Delisting Bias in CRSP Data , 1997 .

[31]  Jules H. van Binsbergen,et al.  Measuring Skill in the Mutual Fund Industry , 2014 .

[32]  Alan M. Taylor.  A Century of Purchasing-Power Parity , 2000, Review of Economics and Statistics.

[33]  Two Centuries of Price-Return Momentum , 2016 .

[34]  B. Jacobsen,et al.  Are Monthly Seasonals Real? A Three Century Perspective , 2012 .

[35]  M. C. Jensen.  The Performance of Mutual Funds in the Period 1945-1964 , 1967 .

[36]  C. Begley,et al.  Drug development: Raise standards for preclinical cancer research , 2012, Nature.

[37]  Malcolm P. Baker,et al.  Investor Sentiment and the Cross-Section of Stock Returns , 2003 .

[38]  Peter Koudijs,et al.  The Boats That Did Not Sail: Asset Price Volatility in a Natural Experiment , 2016 .

[39]  Andrea Frazzini,et al.  Betting Against Beta , 2010 .

[40]  René M. Stulz,et al.  On the Effects of Barriers to International Investment , 1981 .

[41]  Tyler Muir.  Financial Crises and Risk Premia , 2016 .

[42]  Clifford S. Asness,et al.  Value and Momentum Everywhere: Value and Momentum Everywhere , 2013 .

[43]  R. C. Merton,et al.  AN INTERTEMPORAL CAPITAL ASSET PRICING MODEL , 1973 .

[44]  E. Fama,et al.  BUSINESS CONDITIONS AND EXPECTED RETURNS ON STOCKS AND BONDS , 1989 .

[45]  Robert Novy-Marx,et al.  A Taxonomy of Anomalies and Their Trading Costs , 2014 .

[46]  David C. Blitz,et al.  The Volatility Effect , 2007 .

[47]  E. Dimson,et al.  The Worldwide Equity Premium: A Smaller Puzzle , 2006 .

[48]  R. Barro,et al.  Macroeconomic Crises since 1870 , 2008 .

[49]  Lu Zhang,et al.  Replicating Anomalies , 2020, The Review of Financial Studies.

[50]  J. Siegel,et al.  The Equity Premium: Stock and Bond Returns Since 1802 , 1992 .

[51]  L. Swinkels,et al.  Empirical Evidence on the Currency Carry Trade, 1900-2012 , 2015 .

[52]  William N. Goetzmann,et al.  Negative Bubbles: What Happens after a Crash , 2017 .

[53]  G. Karolyi,et al.  A New Partial-Segmentation Approach to Modeling International Stock Returns , 2018, Journal of Financial and Quantitative Analysis.

[54]  Charles Trzcinka,et al.  A New Estimate of Transaction Costs , 1999 .

[55]  Narasimhan Jegadeesh,et al.  Cross-Sectional and Time-Series Tests of Return Predictability: What Is the Difference? , 2017 .

[56]  Christopher C. Geczy,et al.  Two Centuries of Multi-Asset Momentum (Equities, Bonds, Currencies, Commodities, Sectors and Stocks) , 2017 .

[57]  Harry M. Markowitz,et al.  A Backtesting Protocol in the Era of Machine Learning , 2019 .

[58]  A. Ilmanen.  Time-Varying Expected Returns in International Bond Markets , 1995 .

[59]  W. Breen,et al.  Sample‐Dependent Results Using Accounting and Market Data: Some Evidence , 1986 .

[60]  E. Dimson,et al.  CHAPTER 11 – The Worldwide Equity Premium: A Smaller Puzzle , 2008 .

[61]  D. Chambers,et al.  If You're So Smart: John Maynard Keynes and Currency Speculation in the Interwar Years , 2015, The Journal of Economic History.

[62]  Campbell R. Harvey,et al.  . . . And the Cross-Section of Expected Returns , 2014 .

[63]  C. Jobst.  Market leader: the Austro-Hungarian Bank and the making of foreign exchange intervention, 1896–1913 , 2009 .

[64]  Jianfeng Yu,et al.  The short of it , 2012 .

[65]  Lukas Menkhoff,et al.  Currency Momentum Strategies , 2011 .

[66]  Matti Keloharju,et al.  Return Seasonalities: Return Seasonalities , 2016 .

[67]  Campbell R. Harvey,et al.  The Variation of Economic Risk Premiums , 1990, Journal of Political Economy.

[68]  William N. Goetzmann,et al.  Long-Term Global Market Correlations , 2001 .

[69]  Philippe Jorion,et al.  Purchasing Power Parity in the Long Run , 1990 .

[70]  F. Black.  International capital market equilibrium with investment barriers , 1974 .

[71]  T. Nijman,et al.  Testing for mean-variance spanning: a survey , 2001 .

[72]  G. Schwert.  Indexes of U.S. Stock Prices from 1802 to 1987 , 1990 .

[73]  William N. Goetzmann,et al.  Patterns in Three Centuries of Stock Market Prices , 1993 .

[74]  D. Chambers,et al.  Financial Market History: Reflections on the Past for Investors Today , 2016 .

[75]  Michael C. Frank,et al.  Estimating the reproducibility of psychological science , 2015, Science.

[76]  Geoffrey Poitras.  From Antwerp to Chicago : the History of Exchange Traded Derivative Security Contracts , 2009 .

[77]  Robert A. Korajczyk,et al.  Are Momentum Profits Robust to Trading Costs? , 2003 .

[78]  M. Lettau,et al.  Conditional Risk Premia in Currency Markets and Other Asset Classes , 2013 .

[79]  R. Little.  Missing-Data Adjustments in Large Surveys , 1988 .

[80]  S. Ross,et al.  Economic Forces and the Stock Market , 1986 .

[81]  G. William Schwert.  Stock Volatility During the Recent Financial Crisis , 2011 .

[82]  Michael R. Gibbons,et al.  A comparison of inflation forecasts , 1984 .

[83]  Ward Edwards,et al.  Bayesian statistical inference for psychological research. , 1963 .

[84]  Robert Novy-Marx,et al.  Betting Against Betting Against Beta , 2018, Journal of Financial Economics.

[85]  Jon Danielsson,et al.  Learning from History: Volatility and Financial Crises , 2016 .

[86]  T. Post,et al.  Downside Risk Aversion, Fixed Income Exposure, and the Value Premium Puzzle , 2009 .

[87]  M. Eichenbaum,et al.  Long-Run Bulls and Bears , 2015 .

[88]  Momentum in Imperial Russia , 2018, Journal of Financial Economics.

[89]  Ivo Welch,et al.  Reproducing, Extending, Updating, Replicating, Reexamining, and Reconciling , 2019 .

[90]  Donald B. Rubin,et al.  Statistical Matching Using File Concatenation With Adjusted Weights and Multiple Imputations , 1986 .

[91]  Tarun Chordia,et al.  Anomalies and False Rejections , 2017, The Review of Financial Studies.