Comparing Cross-Section and Time-Series Factor Models

43 Pages Posted: 16 Oct 2018 Last revised: 15 Jun 2019

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)

Date Written: May 24, 2019

Abstract

We use the cross-section regression approach of Fama and MacBeth (FM 1973) to construct cross-section factors corresponding to the time-series factors of Fama and French (FF 2015). Time-series models that use only cross-section factors provide better descriptions of average returns than time-series models that use time-series factors. This is true when we impose constant factor loadings and when we use time-varying loadings that are natural for time-series factors and time-varying loadings that are natural for cross-section factors.

JEL Classification: G!, G!!, G12

Suggested Citation

Fama, Eugene F. and French, Kenneth R., Comparing Cross-Section and Time-Series Factor Models (May 24, 2019). Chicago Booth Research Paper No. 18-08, Fama-Miller Working Paper, Available at SSRN: https://ssrn.com/abstract=3255748 or http://dx.doi.org/10.2139/ssrn.3255748

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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