Publications [#344485] of Andrew J. Patton

Journal Articles

1. Patton, AJ; Weller, BM, Risk Price Variation: The Missing Half of Empirical Asset Pricing, edited by Van Nieuwerburgh, S, Review of Financial Studies, vol. 35 no. 11 (November, 2022), pp. 5127-5184, Oxford University Press (OUP) [doi]
   (last updated on 2024/04/23)

   Abstract:
   Equal compensation across assets for the same risk exposures is a bedrock of asset pricing theory and empirics. Yet real-world frictions can violate this equality and create apparently high Sharpe ratio opportunities. We develop new methods for asset pricing with cross-sectional heterogeneity in compensation for risk. We extend k-means clustering to group assets by risk prices and introduce a formal test for whether differences in risk premiums across market segments are too large to occur by chance. We find significant evidence of cross-sectional variation in risk prices for almost all combinations of test assets, factor models, and time periods considered.