Is Long‐Run Risk Really Priced? Revisiting Liu and Matthies (2022)

ABSTRACT The claim by Liu and Matthies (LM) that their macro news risk factor (NI) prices 51 portfolios (associated with four different portfolio groups) is not appropriate. In fact, their single‐factor model is successful only in explaining the momentum deciles, while producing strongly negative performance for the remaining groups. The pricing performance is more doubtful in the case of the alternative news factor (HNI), as the respective risk price is not identified. LM's conclusions stem from a combination of questionable empirical choices and misinterpretation of their results. Moreover, the NI model cannot explain prominent capital asset pricing model anomalies not considered in their study.