Working Papers by Avanidhar Subrahmanyam
# | Title | Authors | Date | Length | Paper | Abstract | |
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1446 | Changing Expected Returns Can Induce Spurious Serial Correlation | Pukthuanthong, Kuntara Roll, Richard Subrahmanyam, Avanidhar | 09/21/2021 | 59 | sswp1446_revised.pdf | Changing expected returns can induce spurious autocorrelation in returns. We show why this happens with simple examples and investigate its prevalence in actual equity data. In a key contribution, we use ex ante expected return estimates from options prices, factor models, and analysts' price targets to investigate our premise. Absolute shifts in expected returns are indeed strongly and positively related to autocorrelations in the cross-section of individual stocks, as predicted by our analysis. Well-studied risk factors show no evidence of spurious components. We also show how our analysis implies spurious cross-autocorrelation and find supporting evidence for this phenomenon as well. | |
1431 | A Protocol for Factor Identification | Pukthuanthong, Kuntara Roll, Richard Subrahmanyam, Avanidhar | 07/28/2017 | 51 | sswp1431.pdf | We propose a protocol for identifying genuine risk factors. The underlying premise is that a risk factor must be related to the covariance matrix of returns, must be priced in the cross-section of returns, and should yield a reward-to-risk ratio that is reasonable enough to be consistent with risk pricing. A market factor, a profitability factor, and traded versions of macroeconomic factors pass our protocol, but many characteristic-based factors do not. Several of the underlying characteristics, however, do command material premiums in the cross-section. |