A five-factors Asset Pricing Model
Eugene Fama, Kenneth French, 2015
Article can be found here.
This is a late addition to the factor war. The article does not cite q5 articles written by NBER despite that last article making several references to earlier Fama articles.
A five-factor model directed at capturing the size, value, profitability, and investment patterns in average stock returns performs better than the three-factor model of Fama and French (FF, 1993)
The three factors are:
- stock market return
- SMB (small minus big in market cap)
- HML (high minus low book to price value)
The evidence of Novy-Marx (2013), Titman, Wei, and Xie (2004) leads to consider additional factors:
- RMW (robust minus weak profitability)
- CMA (conservative minus aggressive investment)
The analysis includes many linear regressions, but does include any cross-validation of the regressions to determine if they are relevant or stationary.
According to ChatRTX, some of the topics covered in the paper include:
- Cross-sectional relationships between different factors (such as size, value, and momentum) and their impact on stock returns.
- The role of large-cap stocks in the overall market and their relationship with other factors.
- The performance of different factors (such as value, momentum, and size) across different time periods and markets.
- The impact of macroeconomic factors (such as interest rates and inflation) on stock returns and the performance of different factors.
- The relationship between different factors and their impact on international stock markets.