Conventional measurements of risk premiums are biased if the estimation models are potentially misspecified and unstable. Say, factor interactions is one of the crucial omitted specifications that standard models cannot involve. Motivated by this argument, we propose an interpretable...

We propose a new modeling approach for the cross-section of returns. Our model, Factorization Asset Pricing Model (FAPM), allows for predictor interactions by introducing second-order observable characteristics interactions regarding the unobservable high-order loadings. If the characteristics...