Commonly used asset pricing models do not successfully account for both time-dimensional and cross-sectional variations of asset return. In this paper, we propose a new class of pricing factors that primarily intend to minimize the Hansen-Jagannathan distance. Empirical results show that, combined with statistical factors or conventional pricing factors, the new factors can parsimoniously account for both time-dimensional and cross-sectional variations of asset returns and greatly improve model performance.
Keywords: Pricing performance; Asset pricing models; CAPM; APT.
