Choosing Factors

54 Pages Posted: 2 Oct 2015 Last revised: 28 Mar 2017

See all articles by Eugene F. Fama

Eugene F. Fama

University of Chicago - Finance

Kenneth R. French

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2017


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

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: or

Eugene F. Fama (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)

Kenneth R. French

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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