We propose a model-selection method to systematically evaluate the contribution to asset pricing of any new factor, above and beyond what a high-dimensional set of existing factors explains. Our methodology explicitly accounts for potential model-selection mistakes that produce a bias due to the...

We propose a model-selection method to systematically evaluate the contribution to asset pricing of any new factor, above and beyond what a high-dimensional set of existing factors explains. Our methodology explicitly accounts for potential model-selection mistakes, unlike the standard...

Estimation and testing of factor models in asset pricing requires choosing a set of test assets. The choice of test assets determines how well different factor risk premia can be identified: if only few assets are exposed to a factor, that factor is weak, which makes standard estimation and...

Estimation and testing of factor models in asset pricing requires choosing a set of test assets. The choice of test assets determines how well different factor risk premia can be identified: if only few assets are exposed to a factor, that factor is weak, which makes standard estimation and...

We propose a three-pass method to estimate the risk premia of observable factors in a linear asset pricing model, which is valid even when the observed factors are just a subset of the true factors that drive asset prices or they are measured with error. We show that the risk premium of a factor...

Standard estimators of risk premia in linear asset pricing models are biased if some priced factors are omitted. We propose a three-pass method to estimate the risk premium of an observable factor, which is valid even when not all factors in the model are specified or observed. We show that the...

Estimation and testing of factor models in asset pricing requires choosing a set of test assets. The choice of test assets determines how well different factor risk premia can be identified: if only few assets are exposed to a factor, that factor is weak, which makes standard estimation and...

We survey recent methodological contributions in asset pricing using factor models and machine learning. We organize these results based on their primary objectives: estimating expected returns, factors, risk exposures, risk premia, and the stochastic discount factor as well as model comparison...