GlostenJagannathanRunkle

The GlostenJagannathanRunkle (GJR) model is a widely used factor model in empirical asset pricing. It was developed by Lawrence Glosten, Ravi Jagannathan, and Kris Runkle and published in the Journal of Finance in 1993. The GJR model extends the traditional Fama-French three-factor model by incorporating a "momentum" factor, also known as the reversal factor.

The core idea behind the GJR model is that stock returns are influenced by a set of systematic risk factors. These factors are typically represented by market beta, the size premium (difference between returns of small and large cap stocks), the value premium (difference between returns of high and low book-to-market stocks), and the momentum factor. The momentum factor captures the tendency for past winners to continue to outperform past losers, and vice versa, over short to medium horizons.

The GJR model aims to provide a more comprehensive explanation of cross-sectional variations in asset returns compared to models that do not account for momentum. Researchers utilize the GJR model to test asset pricing theories, evaluate portfolio performance, and understand the drivers of stock returns. Empirical studies have shown that the GJR model can explain a significant portion of the variation in stock returns that is not captured by simpler factor models. However, like all asset pricing models, its effectiveness can vary across different markets and time periods.