TY  - UNPD
A1  - Billio, Monica
A1  - Caporin, Massimiliano
A1  - Panzica, Roberto Calogero
A1  - Pelizzon, Loriana
T1  - The impact of network connectivity on factor exposures, asset pricing and portfolio diversification
T2  - SAFE working paper series ; No. 166
N2  - This paper extends the classic factor-based asset pricing model by including network linkages in linear factor models. We assume that the network linkages are exogenously provided. This extension of the model allows a better understanding of the causes of systematic risk and shows that (i) network exposures act as an inflating factor for systematic exposure to common factors and (ii) the power of diversification is reduced by the presence of network connections. Moreover, we show that in the presence of network links a misspecified traditional linear factor model presents residuals that are correlated and heteroskedastic. We support our claims with an extensive simulation experiment.
T3  - SAFE working paper - 166 
KW  - CAPM
KW  - volatility
KW  - network
KW  - interconnections
KW  - systematic risk
Y1  - 2017
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/42836
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-428360
UR  - https://ssrn.com/abstract=2914218
IS  - December 1, 2016
PB  - SAFE
CY  - Frankfurt am Main
ER  -