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How common are common return factors across the NYSE and Nasdaq?

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  • Goyal, Amit
  • Pérignon, Christophe
  • Villa, Christophe

Abstract

We entertain the possibility of pervasive factors that are not common across two (or more) groups of securities. We propose and implement a general procedure to estimate the space spanned by common and group-specific pervasive factors. In our empirical analysis, we study the factor structure of excess returns on stocks traded on the NYSE and Nasdaq using our methodology. We find that there are only two common pervasive factors that govern the returns for both NYSE and Nasdaq. At the same time, the NYSE and Nasdaq each have one more group-specific factor that is not the same across the two exchanges. Our results point to the absence of complete similarity between the factors driving the returns on these exchanges.

Suggested Citation

  • Goyal, Amit & Pérignon, Christophe & Villa, Christophe, 2008. "How common are common return factors across the NYSE and Nasdaq?," Journal of Financial Economics, Elsevier, vol. 90(3), pages 252-271, December.
    • Handle: RePEc:eee:jfinec:v:90:y:2008:i:3:p:252-271
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    5. Don H. Kim & Mico Loretan & Eli M. Remolona, 2009. "Contagion and Risk in the Amplification of Crisis : Evidence from Asian Names in the CDS Market," EABER Working Papers 22861, East Asian Bureau of Economic Research.
    6. Jushan Bai & Kunpeng Li, 2016. "Maximum Likelihood Estimation and Inference for Approximate Factor Models of High Dimension," The Review of Economics and Statistics, MIT Press, vol. 98(2), pages 298-309, May.
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    9. Zura Kakushadze, 2015. "Heterotic Risk Models," Papers 1508.04883, arXiv.org, revised Jan 2016.
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    11. Juneja, Januj, 2012. "Common factors, principal components analysis, and the term structure of interest rates," International Review of Financial Analysis, Elsevier, vol. 24(C), pages 48-56.
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