Fama-French Factors and Business Cycles

17 Pages Posted: 10 Dec 2017 Last revised: 1 Apr 2022

See all articles by Arnav Sheth

Arnav Sheth

Massachusetts Institute of Technology (MIT); Minerva Schools at KGI

Tee Lim

Saint Mary's College of California

Date Written: December 4, 2017

Abstract

We examine the behavior of Fama-French factors across business cycles measured in various ways. We first split up the business cycles into four stages and examine the cumulative returns of factors in each of those stages. We then look at the behavior of the factors after a yield curve inversion starts and ends. We finally run a logistic regression to test the predictive power of the term spread on the NBER recession indicator. Our results show that there is an effect on the factors of each of our four stages, and there is limited predictive power from the recession probabilities. We believe this is of practical importance to portfolio managers who are factor-oriented in their approach.

Keywords: factor investing, yield curve, term spread, business cycles, recessions

Suggested Citation

Sheth, Arnav and Lim, Tee, Fama-French Factors and Business Cycles (December 4, 2017). Available at SSRN: https://ssrn.com/abstract=3082577 or http://dx.doi.org/10.2139/ssrn.3082577

Arnav Sheth (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
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Cambridge, MA 02139-4307
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Minerva Schools at KGI ( email )

1145 Market St, 9th Floor
San Francisco, CA 94103
United States

Tee Lim

Saint Mary's College of California ( email )

P.O. Box 4240
Moraga, CA 94575-4240
United States

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