NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Which Factors?

Kewei Hou, Haitao Mo, Chen Xue, Lu Zhang

NBER Working Paper No. 20682
Issued in November 2014, Revised in July 2018
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth, International Finance and Macroeconomics

Many recently proposed, seemingly different factor models are closely related. In spanning tests, the q-factor model largely subsumes the Fama-French (2015, 2018) 5-and 6-factor models, and the q5 model captures the Stambaugh-Yuan (2017) model. The Stambaugh-Yuan factors are sensitive to their construction, and once replicated via the standard approach, are close to the q-factors, with correlations of 0.8 and 0.84. Finally, it seems difficult to motivate the Fama-French 5-factor model from valuation theory, which predicts a positive relation between the expected investment and the expected return.

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Document Object Identifier (DOI): 10.3386/w20682

Published: Kewei Hou & Haitao Mo & Chen Xue & Lu Zhang, 2019. "Which Factors?*," Review of Finance, vol 23(1), pages 1-35. citation courtesy of

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