Fama And French Research Papers

Choosing Factors

54 PagesPosted: 2 Oct 2015Last revised: 28 Mar 2017

There are 2 versions of this paper

Date Written: March 1, 2017

Abstract

Our goal is to develop insights about the max squared Sharpe ratio for model factors as a metric for ranking asset-pricing models. We consider nested and non-nested models. The nested models are the CAPM, the three-factor model of Fama and French (1993), the five-factor extension in Fama and French (2015), and a six-factor model that adds a momentum factor. The non-nested models examine three issues about factor choice in the six-factor model: (i) cash profitability versus operating profitability as the variable used to construct profitability factors, (ii) long-short spread factors versus excess return factors, and (iii) factors that use small or big stocks versus factors that use both.

Keywords: Five-factor model

JEL Classification: G12

Suggested Citation:Suggested Citation

Fama, Eugene F. and French, Kenneth R., Choosing Factors (March 1, 2017). Fama-Miller Working Paper ; Tuck School of Business Working Paper No. 2668236; Chicago Booth Research Paper No. 16-17. Available at SSRN: https://ssrn.com/abstract=2668236 or http://dx.doi.org/10.2139/ssrn.2668236

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Current Research Returns

Because of changes in the treatment of deferred taxes described in FASB 109, files produced after August 2016 no longer add Deferred Taxes and Investment Tax Credit to BE for fiscal years ending in 1993 or later.

 

January
2018

Last 3
Months

Last 12
Months

Fama/French 3 Research Factors

Rm-Rf
SMB
HML



5.57
-3.07
-1.42



10.04
-5.20
-1.32



25.87
-7.33
-12.62

Fama/French 5 Research Factors (2x3)

Rm-Rf
SMB
HML
RMW
CMA



5.57
-3.13
-1.42
0.11
-0.91



10.04
-4.78
-1.32
4.15
0.85



25.87
-8.15
-12.62
7.66
-11.85

Fama/French Research Portfolios

Size and Book-to-Market Portfolios
Small Value
Small Neutral
Small Growth

Big Value
Big Neutral
Big Growth

Size and Operating Profitability Portfolios
Small Robust
Small Neutral
Small Weak

Big Robust
Big Neutral
Big Weak

Size and Investment Portfolios
Small Conservative
Small Neutral
Small Aggressive

Big Conservative
Big Neutral
Big Aggressive




1.71
3.07
3.19

5.31
5.20
6.66


2.25
2.03
3.29

6.57
5.55
5.29


3.54
1.93
2.67

4.98
4.60
7.68




4.51
5.28
6.57

10.80
9.79
11.38


9.75
4.41
4.54

13.06
8.64
9.97


7.40
4.54
6.10

11.17
10.49
10.77




11.95
16.82
26.95

24.10
19.27
34.34


22.93
15.34
18.70

31.97
26.18
20.89


12.49
15.67
23.57

22.30
23.78
34.92


U.S. Research Returns Data (Downloadable Files)

Changes in CRSP Data

Fama/French 3 Factors  TXT  CSV  Details
Fama/French 3 Factors [Weekly]  TXT  CSV  Details
Fama/French 3 Factors [Daily]  TXT  CSV  Details

Fama/French 5 Factors (2x3)  TXT  CSV  Details
Fama/French 5 Factors (2x3) [Daily]  TXT  CSV  Details

Univariate sorts on Size, B/M, OP, and Inv

Portfolios Formed on Size  TXT  CSV  Details
Portfolios Formed on Size [ex.Dividends]  TXT  CSV  Details
Portfolios Formed on Size [Daily]  TXT  CSV  Details

Portfolios Formed on Book-to-Market  TXT  CSV  Details
Portfolios Formed on Book-to-Market [ex. Dividends]  TXT  CSV  Details
Portfolios Formed on Book-to-Market [Daily]  TXT  CSV  Details

Portfolios Formed on Operating Profitability  TXT  CSV  Details
Portfolios Formed on Operating Profitability [ex. Dividends]  TXT  CSV  Details

Portfolios Formed on Investment  TXT  CSV  Details
Portfolios Formed on Investment [ex. Dividends]  TXT  CSV  Details

Bivariate sorts on Size, B/M, OP, and Inv

6 Portfolios Formed on Size and Book-to-Market (2 x 3)  TXT  CSV  Details
6 Portfolios Formed on Size and Book-to-Market (2 x 3) [ex. Dividends]  TXT  CSV  Details
6 Portfolios Formed on Size and Book-to-Market (2 x 3) [Weekly]  TXT  CSV  Details
6 Portfolios Formed on Size and Book-to-Market (2 x 3) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Size and Book-to-Market (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Size and Book-to-Market (5 x 5) [ex. Dividends]  TXT  CSV  Details
25 Portfolios Formed on Size and Book-to-Market (5 x 5) [Daily]  TXT  CSV  Details

100 Portfolios Formed on Size and Book-to-Market (10 x 10)  TXT  CSV  Details
100 Portfolios Formed on Size and Book-to-Market (10 x 10) [ex. Dividends]  TXT  CSV  Details
100 Portfolios Formed on Size and Book-to-Market (10 x 10) [Daily]  TXT  CSV  Details

6 Portfolios Formed on Size and Operating Profitability (2 x 3)  TXT  CSV  Details
6 Portfolios Formed on Size and Operating Profitability (2 x 3) [ex. Dividends]  TXT  CSV  Details
6 Portfolios Formed on Size and Operating Profitability (2 x 3) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Size and Operating Profitability (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Size and Operating Profitability (5 x 5) [ex. Dividends]  TXT  CSV  Details
25 Portfolios Formed on Size and Operating Profitability (5 x 5) [Daily]  TXT  CSV  Details

100 Portfolios Formed on Size and Operating Profitability (10 x 10)  TXT  CSV  Details
100 Portfolios Formed on Size and Operating Profitability (10 x 10) [ex. Dividends]  TXT  CSV  Details
100 Portfolios Formed on Size and Operating Profitability (10 x 10) [Daily]  TXT  CSV  Details

6 Portfolios Formed on Size and Investment (2 x 3)  TXT  CSV  Details
6 Portfolios Formed on Size and Investment (2 x 3) [ex. Dividends]  TXT  CSV  Details
6 Portfolios Formed on Size and Investment (2 x 3) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Size and Investment (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Size and Investment (5 x 5) [ex. Dividends]  TXT  CSV  Details
25 Portfolios Formed on Size and Investment (5 x 5) [Daily]  TXT  CSV  Details

100 Portfolios Formed on Size and Investment (10 x 10)  TXT  CSV  Details
100 Portfolios Formed on Size and Investment (10 x 10) [ex. Dividends]  TXT  CSV  Details
100 Portfolios Formed on Size and Investment (10 x 10) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Book-to-Market and Operating Profitability (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Book-to-Market and Operating Profitability (5 x 5) [ex. Dividends]  TXT  CSV  Details
25 Portfolios Formed on Book-to-Market and Operating Profitability (5 x 5) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Book-to-Market and Investment (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Book-to-Market and Investment (5 x 5) [ex. Dividends]  TXT  CSV  Details
25 Portfolios Formed on Book-to-Market and Investment (5 x 5) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Operating Profitability and Investment (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Operating Profitability and Investment (5 x 5) [ex. Dividends]  TXT  CSV  Details
25 Portfolios Formed on Operating Profitability and Investment (5 x 5) [Daily]  TXT  CSV  Details

Three-way sorts on Size, B/M, OP, and Inv

32 Portfolios Formed on Size, Book-to-Market, and Operating Profitability (2 x 4 x 4)  TXT  CSV  Details
32 Portfolios Formed on Size, Book-to-Market, and Operating Profitability (2 x 4 x 4) [ex. Dividends]  TXT  CSV  Details

32 Portfolios Formed on Size, Book-to-Market, and Investment (2 x 4 x 4)  TXT  CSV  Details
32 Portfolios Formed on Size, Book-to-Market, and Investment (2 x 4 x 4) [ex. Dividends]  TXT  CSV  Details

32 Portfolios Formed on Size, Operating Profitability, and Investment (2 x 4 x 4)  TXT  CSV  Details
32 Portfolios Formed on Size, Operating Profitability, and Investment (2 x 4 x 4) [ex. Dividends]  TXT  CSV  Details

Univariate sorts on E/P, CF/P, and D/P

Portfolios Formed on Earnings/Price  TXT  CSV  Details
Portfolios Formed on Earnings/Price [ex. Dividends]  TXT  CSV  Details

Portfolios Formed on Cashflow/Price  TXT  CSV  Details
Portfolios Formed on Cashflow/Price [ex. Dividends]  TXT  CSV  Details

Portfolios Formed on Dividend Yield  TXT  CSV  Details
Portfolios Formed on Dividend Yield [ex. Dividends]  TXT  CSV  Details

Sorts involving Prior Returns

Momentum Factor (Mom)  TXT  CSV  Details
Momentum Factor (Mom) [Daily]  TXT  CSV  Details

6 Portfolios Formed on Size and Momentum (2 x 3)  TXT  CSV  Details
6 Portfolios Formed on Size and Momentum (2 x 3) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Size and Momentum (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Size and Momentum (5 x 5) [Daily]  TXT  CSV  Details

10 Portfolios Formed on Momentum  TXT  CSV  Details
10 Portfolios Formed on Momentum [Daily]  TXT  CSV  Details

Short-Term Reversal Factor (ST Rev)  TXT  CSV  Details
Short-Term Reversal Factor (ST Rev) [Daily]  TXT  CSV  Details

6 Portfolios Formed on Size and Short-Term Reversal (2 x 3)  TXT  CSV  Details
6 Portfolios Formed on Size and Short-Term Reversal (2 x 3) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Size and Short-Term Reversal (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Size and Short-Term Reversal (5 x 5) [Daily]  TXT  CSV  Details

10 Portfolios Formed on Short-Term Reversal  TXT  CSV  Details
10 Portfolios Formed on Short-Term Reversal [Daily]  TXT  CSV  Details

Long-Term Reversal Factor (LT Rev)  TXT  CSV  Details
Long-Term Reversal Factor (LT Rev) [Daily]  TXT  CSV  Details

6 Portfolios Formed on Size and Long-Term Reversal (2 x 3)  TXT  CSV  Details
6 Portfolios Formed on Size and Long-Term Reversal (2 x 3) [Daily]  TXT  CSV  Details

25 Portfolios Formed on Size and Long-Term Reversal (5 x 5)  TXT  CSV  Details
25 Portfolios Formed on Size and Long-Term Reversal (5 x 5) [Daily]  TXT  CSV  Details

10 Portfolios Formed on Long-Term Reversal  TXT  CSV  Details
10 Portfolios Formed on Long-Term Reversal [Daily]  TXT  CSV  Details

Sorts involving Accruals, Market Beta, Net Share Issues, Daily Variance, and Daily Residual Variance

Portfolios Formed on Accruals  TXT  CSV  Details
25 Portfolios Formed on Size and Accruals  TXT  CSV  Details

Portfolios Formed on Market Beta  TXT  CSV  Details
25 Portfolios Formed on Size and Market Beta  TXT  CSV  Details

Portfolios Formed on Net Share Issues  TXT  CSV  Details
25 Portfolios Formed on Size and Net Share Issues  TXT  CSV  Details

Portfolios Formed on Variance  TXT  CSV  Details
25 Portfolios Formed on Size and Variance  TXT  CSV  Details

Portfolios Formed on Residual Variance  TXT  CSV  Details
25 Portfolios Formed on Size and Residual Variance  TXT  CSV  Details

Industry Portfolios

5 Industry Portfolios  TXT  CSV  Details
5 Industry Portfolios [ex. Dividends]  TXT  CSV  Details
5 Industry Portfolios [Daily]  TXT  CSV  Details

10 Industry Portfolios  TXT  CSV  Details
10 Industry Portfolios [ex. Dividends]  TXT  CSV  Details
10 Industry Portfolios [Daily]  TXT  CSV  Details

12 Industry Portfolios  TXT  CSV  Details
12 Industry Portfolios [ex. Dividends]  TXT  CSV  Details
12 Industry Portfolios [Daily]  TXT  CSV  Details

17 Industry Portfolios  TXT  CSV  Details
17 Industry Portfolios [ex. Dividends]  TXT  CSV  Details
17 Industry Portfolios [Daily]  TXT  CSV  Details

30 Industry Portfolios  TXT  CSV  Details
30 Industry Portfolios [ex. Dividends]  TXT  CSV  Details
30 Industry Portfolios [Daily]  TXT  CSV  Details

38 Industry Portfolios  TXT  CSV  Details
38 Industry Portfolios [ex. Dividends]  TXT  CSV  Details
38 Industry Portfolios [Daily]  TXT  CSV  Details

48 Industry Portfolios  TXT  CSV  Details
48 Industry Portfolios [ex. Dividends]  TXT  CSV  Details
48 Industry Portfolios [Daily]  TXT  CSV  Details

49 Industry Portfolios  TXT  CSV  Details
49 Industry Portfolios [ex. Dividends]  TXT  CSV  Details
49 Industry Portfolios [Daily]  TXT  CSV  Details

The momentum and short term reversal portfolios are reconstituted monthly and the other research portfolios are reconstituted annually. We reconstruct the full history of returns each month when we update the portfolios. (Historical returns can change, for example, if CRSP revises its database.) Although the portfolios include all NYSE, AMEX, and NASDAQ firms with the necessary data, the breakpoints use only NYSE firms. Missing data are indicated by -99.99 or -999.

In October 2012, we revised the market return used to measure Rm-Rf in the US. It is now the value-weight return of all CRSP firms incorporated in the US and listed on the NYSE, AMEX, or NASDAQ that have (i) a CRSP share code of 10 or 11 at the beginning of month t, (ii) good shares and price data at the beginning of t, and (iii) good return data for t. Previously we used the CRSP NYSE/AMEX/NASDAQ Value-Weighted Market Index as the proxy for the market return. The set of firms in the new series is more consistent with the universe used to compute the other US returns.

In January 2015, CRSP completed an extensive review of their shares outstanding data for 1925-1946. The file they released in January 2015 (with data through December 2014) incorporates over 4000 changes that affect 400 Permnos. As a result, many of the returns we report for 1925-1946 change in our January 2015 update and some of the changes are large. Please see Changes in CRSP Data for descriptions of data changes by CRSP affecting the data series above.

In May 2015, we revised the method for computing daily portfolio returns to match more closely the method for computing monthly portfolio returns. Daily files produced before May 2015 drop stocks from a portfolio (i) the next time the portfolio is reconstituted, at the end of June, regardless of the CRSP delist date or (ii) during any period in which they are missing prices for more than 10 consecutive trading days. Daily files produced after May 2015 drop stocks from a portfolio (i) immediately after their CRSP delist date or (ii) during any period in which they are missing prices for more than 200 consecutive trading days.

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