Pastor-Stambaugh model

CFA Level II
#1

Could any of you kindly explain this concept briefly here? I am sorry I do not have access to the CFAI text right now. TIA!

#2

same as fama french. addition of a liquidity constraint.

#3

PSM = rf + (SMB*Beta) + (HML*Beta) + (Less Liquid - Highly Liquid portfolios*Beta)

#4

Thanks folks. @Notheastern Student, did you put the parenthesis at the end by mistake? I am guessing the following would make better sense: PSM = rf + (SMB*Beta) + (HML*Beta) + (Less Liquid - Highly Liquid portfolios)*Beta Please confirm.

#5

yes, it was typo, was getting lazy about how to abbreviate liqudity so put whole thnig, ur version is correct.

#6

Thanks again!