Creating Fama and French Factors with Style
Posted: 23 Apr 2003
This paper utilizes Frank Russell style portfolios to create useful proxies for the Fama and French (1993) factors. The proxy-mimicking portfolios are shown to represent a pervasive source of exposure across U.S. industry portfolios and to generally possess similar properties to those utilized in the finance literature. Further, a set of multivariate asset-pricing tests of the three-factor Fama and French asset-pricing (FF) model based on the proxy factors fail to reject the model. However, they do not reveal strong evidence of significantly positive risk premiums, particularly in the case of the size and book-to-market factors.
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