Noisy Factors

78 Pages Posted: 28 Sep 2021 Last revised: 26 Jun 2023

See all articles by Pat Akey

Pat Akey

University of Toronto - Rotman School of Management; European Corporate Governance Institute (ECGI)

Adriana Robertson

University of Chicago Law School; European Corporate Governance Institute (ECGI)

Mikhail Simutin

University of Toronto - Rotman School of Management

Date Written: June 15, 2023

Abstract

The Fama-French factors are ubiquitous in empirical finance. We find that factor returns differ substantially depending on when the data were downloaded, and only a small portion of these retroactive changes is explained by revisions to the underlying data. We show that these changes have large effects in two widely-studied contexts: mutual fund performance and cross-sectional equity pricing. Model evaluation tests suggest that more recent vintages do not perform better. Our findings have significant implications for the integrity of finance research and underscore the importance of understanding the provenance of third-party data.

Keywords: Fama French factors, asset pricing, performance evaluation, equities, mutual funds, model fit

JEL Classification: G10, G12, G14, G20, G31

Suggested Citation

Akey, Pat and Robertson, Adriana and Simutin, Mikhail, Noisy Factors (June 15, 2023). Rotman School of Management Working Paper, European Corporate Governance Institute – Finance Working Paper No. 920/2023, Available at SSRN: https://ssrn.com/abstract=3930228 or http://dx.doi.org/10.2139/ssrn.3930228

Pat Akey

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Adriana Robertson

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Mikhail Simutin (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/simutin

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