| Authors |
Koundouri, P., Kourogenis, N., Pittis, N. and Samartzis, P. |
| Title |
Factor Models as 'Explanatory Unifiers' versus 'Explanatory Ideals' of Empirical Regularities of Stock Returns |
| Abstract |
In this paper we investigate whether the empirical regularities of stock returns are independent of each other or whether any one of them implies all the others. If such a regularity
exists, it is called 'fundamental' and is usually thought of as a 'deductive explanation' of
the others. We demonstrate that such a fundamental regularity of stock returns is the one
represented by the single factor model with a stochastically persistent beta coefficient (SFM-
AR). Indeed, this regularity alone entails all the usual regularities of stock returns, including
conditional heteroskedasticity, leptokurtosis aggregational Gaussianity and aggregational Independence. Hence, SFM-AR may be thought of as an "explanatory unifier" of the empirical
regularities of stock returns. However, since the theoretical origins of SFM-AR are weak, its
explanatory status falls short of meeting the standards of the 'ideal explanatory text'. |
| Creation Date |
2015-02-05 |
| Keywords |
empirical regularities, stock returns, single factor model, autoregressive beta, statistical explanation. |
| Classification JEL |
C18, G10, C22, G11, |
| File |
Factor.Models.as.Explanatory.Unifiers.versus.Explanatory.Ideals.pdf (425503 bytes) |
| File-Function |
First version |
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Copyright © 2009 [D.I.E.S.S. A.U.E.B.]. All rights reserved.
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