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Multifactor models and their consistency with the APT

Cooper, Ilan and Ma, Liang and Maio , Paulo and Philip, Dennis (2021) 'Multifactor models and their consistency with the APT.', Review of asset pricing studies., 11 (2). pp. 402-444.


We examine the consistency of several prominent multifactor models from the empirical asset pricing literature with the arbitrage pricing theory (APT) framework. We follow the APT-related literature and estimate the common factor structure from a rich cross-section (associated with 42 major CAPM anomalies) by employing the asymptotic principal components method. Our benchmark model contains six statistical factors and clearly dominates, in both economic and statistical terms, most of the empirical multifactor models proposed in the literature by a good margin. These results represent a critical challenge to the current workhorse models in terms of explaining large-scale equity risk premiums.

Item Type:Article
Full text:Publisher-imposed embargo until 26 December 2022.
(AM) Accepted Manuscript
File format - PDF
Publisher Web site:
Publisher statement:This is a pre-copyedited, author-produced PDF of an article accepted for publication in Review of asset pricing studies following peer review. The version of record Cooper, Ilan, Ma, Liang, Maio Paulo & Philip, Dennis (2021). Multifactor Models and Their Consistency with the APT. Review of Asset Pricing Studies 11(2): 402-444.] is available online at:
Date accepted:20 October 2020
Date deposited:20 October 2020
Date of first online publication:26 December 2020
Date first made open access:26 December 2022

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