The Cross Section of Expected Returns: Evidence from Implied Beliefs of Active Mutual Funds Managers
Date of Award
Doctor of Business
I develop a new test to compare the performance of asset pricing models. Using the industry allocations of active US mutual funds, I employ a structural model to estimate the implied expected returns on industry portfolios. For each asset pricing model, I use the factor loadings and the implied expected returns to calculate the implied expected factor risk premium. I compare the models based on the implied Sharpe ratio of the market portfolio. My methodology identifies the asset pricing model that not only generates the highest Sharpe ratio for the market but also best tracks the ex-ante Sharpe ratio. I find that the traditional macroeconomic risk factor model proposed by Chen et al. (1986) performs the best.
Chair and Committee
Radhakrishnan Gopalan; Asaf Manela; Deniz Aydin
Sabat, Jorge, "The Cross Section of Expected Returns: Evidence from Implied Beliefs of Active Mutual Funds Managers" (2019). Doctor of Business Administration Dissertations. 6.
Business Administration, Management, and Operations Commons, Portfolio and Security Analysis Commons