The Econometric SocietyEdited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262
Econometrica: Sep, 1983, Volume 51, Issue 5
https://doi.org/0012-9682(198309)51:5<1305>2.0.CO;2-1
p. 1305-1324
Gary Chamberlain
We present a definition of factor structure that is less restrictive than the one typically used in arbitrage pricing models. Our factor structure restrictions build on the following intuitive distinctions between factor variance and idiosyncratic variance: (i) A well-diversified portfolio contains only factor variance. (ii) If a portfolio is uncorrelated with the well-diversified portfolios, then it contains only idiosyncratic variance; so if a sequence of such portfolios becomes well-diversified, the limiting variance should be zero. Our factor structure restrictions imply Ross' [5] arbitrage pricing formula. We obtain upper and lower bounds on the approximation error in that formula; these bounds may be useful in empirical work. They imply that arbitrage pricing is exact if and only if there is a risky, well-diversified portfolio on the mean-variance frontier. If all mean-variance efficient portfolios are well-diversified, then the well-diversified portfolios provide mutual fund separation. Our factor structure restrictions are satisfied (with K factors) if and only if the covariance matrix of asset returns has only K unbounded eigenvalues as the number of assets increases.
March 5, 2024
The terms of the Editors of the Econometric Society's three journals end June 30, 2025. We are pleased to announce the incoming Editors and to thank the outgoing Editors for their excellent and continuing service.
Econometrica: Since 2019, Guido Imbens has served as the 14th Editor of Econometrica. On July 1, 2025, Marina Halac will become the Editor.
Quantitative Economics: Stéphane Bonhomme has been the Editor of Quantitative Economics since 2021. His successor will be Bernard Salanié.
Theoretical Economics: The Editor of Theoretical Economics since 2021 has been Simon Board. Taking over for him in July 2025 will be Federico Echenique.
Guido, Stéphane, and Simon have been outstanding Editors. We are grateful to them for the work they have done and will continue to do, and we look forward to further congratulating them next year. We believe Marina, Bernard, and Federico will be outstanding successors and we thank them in advance for their service.
Finally, we are grateful to Larry Samuelson for chairing all three search committees, and we thank the search committee members for their hard and fruitful work:
Econometrica: Christian Dustmann, Lars Hansen, Alessandro Lizzeri, George Mailath, Ariel Pakes, Helene Rey, and Elie Tamer.
QE: Kate Ho, Michael Keane, Felix Kubler, Whitney Newey, and Frank Schorfheide.
TE: Jeff Ely, Johannes Horner, Gilat Levy, Meg Meyer, and Ran Spiegler.
