Academy of Mathematics and Systems Science, CAS
Colloquia & Seminars

Speaker:	王志诚教授，北京大学
Inviter:	杨晓光研究员
Title:	Identifying Risk Factors Orthogonally Extending the Dimension of CAPM
Language:	English
Time & Venue:	2023.06.15 15:00-17:00 N205
Abstract:	Using an augmented covariance matrix as a bridge, we prove that covariance matrix of asset returns can be isomorphic to a block diagonalized matrix, which enables market portfolio as the first principal component from a quasi-PCA. Therefore, the CAPM is still right, but needs to expand the dimension. This framework provides a novel explanation for the failure of estimated market betas. We propose a test method to identify new risk factors outside the dimension of market portfolio and collect 22 representatives for evaluation, and the result shows that most of them cannot, but those with solid theoretical foundations perform well.