Choosing Factors

33 Pages Posted: 6 Sep 2016

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: September 5, 2016


We examine three issues about choice of factors in the five-factor model of Fama and French (FF 2015): (i) cash profitability (CP) versus operating profitability (OP) as the variable used to construct profitability factors, (ii) long – short spread factors versus excess returns on the long or short ends of the spread factors, and (iii) factors that use the small or big ends of value, profitability, and investment factors versus averages of small and big components. We rank models primarily on the max squared Sharpe ratio for model factors, Sh2(f). This metric leads to a three-way tie for best model honors. We choose among them using other common performance metrics. The ultimate winner is the spread factor model of FF (2015) with the OP profitability factor replaced by a CP factor.

Suggested Citation

Fama, Eugene F. and French, Kenneth R., Choosing Factors (September 5, 2016). Available at SSRN: or

Eugene F. Fama (Contact Author)

University of Chicago - Finance ( email )

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Kenneth R. French

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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