The Fama-French’s five-factor model relation with interest rates and macro variables

Leite, André Luís; Klötzle, Marcelo Cabús; Pinto, Antônio Carlos Figueiredo; Barbedo, Cláudio Henrique da Silveira

doi:10.1016/j.najef.2020.101197

Cited by 10 publications

(5 citation statements)

References 31 publications

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“…The related literature can be divided into three main categories namely; the profitability and/or investment factors greatly improve the explanatory power of the model; these factors are significant but only have weak effects; and these factors do not enhance the predictive power of the model. Sarwar et al (2018) found that both profitability and investment factors significantly improve the explanatory power of the model in describing the average returns of the US stocks, which is confirmed by more recent studies (Hachicha et al, 2020;Leite et al, 2020). Similarly, Skocir and Loncarski (2018) find that profitability and investment factors enhance the explanatory power of the three-factor model.…”

Section: Research Themes and Discussionmentioning

confidence: 56%

“…Other factors that have been studied that could potentially enhance the performance of the Fama and French five-factor model are investor sentiment index Dhaoui & Bensalah, (2017); Hachicha et al (2020), low-risk anomaly Blitz & Vidojevic (2017), human capital component (Roy & Shijin, 2018), default risk factor Skocir and Loncarski (2018); Khan & Iqbal (2021), credit risk factor Li & Lin (2021), volatility risk factor Chen & Gao (2020), nominal interest rate factor Safiuallah & Shamsudin (2021); Escribano et al (2022), consumer price index Leite et al (2020) and sustainability factor (Gregory et al, 2021).…”

Section: Research Themes and Discussionmentioning

confidence: 99%

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How Well has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review

Sohor,

Low

2024

IJARAFMS

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Despite producing mixed findings, the Fama and French's (2015) model has been widely used to explain stock returns. This paper conducts a systematic literature review of the Fama and French's (2015) five factor model to evaluate its empirical validity in estimating the average returns of stocks. The review revolves around four major themes: performance of the fivefactor model in explaining stock returns and whether it outperforms the three-factor model in stock returns estimation; predictive power of the two new factors in the five-factor model namely profitability and investment factors; value factor's redundancy for describing average stock returns after accounting for profitability and investment factors; and the exploration of other factors that could enhance the model's explanatory power. The paper used the PRISMA (The Preferred Reporting Items for Systematic Reviews and Meta-Analysis) method as a search strategy to conduct the systematic reviews. Highly cited articles published the Web of Science database from 2015 to 2022 were explored and a final sample of 61 were used in the review. The reviews find that in most studies, the Fama-French five-factor model is superior to the three-factor model in predicting the average stock market return at the national and regional levels. On the predictive power of profitability and investment factors, the findings were mixed. Similar conclusion was reached for the redundancy of value factor in explaining stock returns. Several other factors have also been found to increase the explanatory power of the five-factor model. The systematic literature of this paper evaluates several specific research questions related to Fama-French models, thereby providing researchers an understanding of the research topic and its evolution over time. Future review could be further expanded further to include articles from the Scopus-indexed journals. Insights from this paper are also useful for investors engaging in factor investing and in formulating asset allocation strategy.

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Section: Research Themes and Discussionmentioning

confidence: 56%

Section: Research Themes and Discussionmentioning

confidence: 99%

How Well has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review

Sohor,

Low

2024

IJARAFMS

View full text Add to dashboard Cite

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“…Introducing related studies, Ülkü (2017) examined the Monday effect in the Fama-French's operating profitability factor. Leite et al (2020) investigated the relations between the five-factors, interest rates, and macro variables. Lin (2017) tested the effectiveness of the five-factor model in China.…”

Section: Related Literature Reviewmentioning

confidence: 99%

Size and Operating Profitability Portfolio Returns and Return Premia in Japan—A Tour d’horizon

Tsuji¹

2021

jmr

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This study examines the Japanese equity returns and return premia by focusing on firm size- and corporate operating profitability-sorted portfolios over the period from 1990 to 2020. As a result of our explorations, this study derives the following much beneficial findings. (1) The effects of corporate operating profitability and firm size are generally continuously seen in the Japanese equity market. More specifically, (2) the size effect is much stronger in our latter half sub-period; while the operating profitability effect is similarly seen in both our former half and latter half sub-periods. Furthermore, (3) we stress that this study employs the data in US dollars, and calculates several key statistics and measures for not only our full sample period but also many different sub-periods, in which economic and business circumstances are much different. Therefore, for both Japanese and international equity investors, our findings shall be highly useful for enriching and furthering the understanding of returns and return premia of Japanese equity portfolios.

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“…They found that RMW lost its explanatory power in the presence of CPI. When the researchers combined CPI with term structure's slope and excess market returns, they discovered that it explains the cross-section of average returns better than the Fama-French five-factor model [12]. Mosoeu and Kodongo made a test about Fama-French fivefactor model on average stock returns.…”

Section: Introductionmentioning

confidence: 99%

Application of Fama-French five factor model in US clothing industry during COVID-19

Jia¹,

Lu²,

Qu³

2022

BCPBM

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During the COVID crisis, the US clothing industry has suffered a great plunge due to vast store closures and business discontinuation. People must understand in what aspects this crisis impacted on the clothing industry. This paper aims to analyze the impact of COVID-19 on US clothing industry return and risk. We used data in a one-year span before and during COVID-19, respectively, from the Kenneth French Data Library. This study applies the Fama & French 5-factor asset pricing model and adopts the multiple linear regression method for analysis. We tried to identify which factors in the model explained the COVID returns and how their explanatory power changes before and during COVID. It is interesting to evaluate that size, value, and investment factors were all insignificant before the crisis, but all turned significant during COVID-19. Also, discovering that growth stocks outperformed value stocks during the crisis was not the case before the crisis. It could be attributed to investors' speculation intent becoming stronger amid the distressing environment of the pandemic. Firms in clothing industries were investing conservatively due to a shortage in cash flows in extreme uncertainty. Small stocks performed better than big stocks during the crisis. It speculates that bigger-size firms were shattered more as they occupied greater market share and thus undertook more loss than smaller-size firms. In short, during the COVID period, small stocks, growth stocks, and conservative stocks performed more strongly and were thus more favourable to investors.

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The Fama-French’s five-factor model relation with interest rates and macro variables

Cited by 10 publications

References 31 publications

How Well has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review

How Well has Fama-French Five-Factor Model Explained Asset Returns? - A Systematic Literature Review

Size and Operating Profitability Portfolio Returns and Return Premia in Japan—A Tour d’horizon

Application of Fama-French five factor model in US clothing industry during COVID-19

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