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Estimating the Time-Varying Structures of the Fama-French Multi-Factor Models

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  • Akihiko Noda

Abstract

This study examines the time-varying structures of Fama-French multi-factor models (Fama and French (1993, 2015, 2016, 2018)) using Ito et al.'s (2022) generalized least squares-based time-varying multivariate model. Specifically, we employ 25 benchmark portfolios for the U.S., Japan, and Europe to estimate time-varying parameters in those models, with a focus on time stability. We find that model parameters change over time, with differences in time stability among the countries/regions.

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  • Akihiko Noda, 2022. "Estimating the Time-Varying Structures of the Fama-French Multi-Factor Models," Papers 2208.01270, arXiv.org.
    • Handle: RePEc:arx:papers:2208.01270
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    References listed on IDEAS

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    1. Noda, Akihiko, 2016. "A test of the adaptive market hypothesis using a time-varying AR model in Japan," Finance Research Letters, Elsevier, vol. 17(C), pages 66-71.
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    3. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    4. Keiichi Kubota & Hitoshi Takehara, 2018. "Does the Fama and French Five†Factor Model Work Well in Japan?," International Review of Finance, International Review of Finance Ltd., vol. 18(1), pages 137-146, March.
    5. Jagannathan, Ravi & Kubota, Keiichi & Takehara, Hitoshi, 1998. "Relationship between Labor-Income Risk and Average Return: Empirical Evidence from the Japanese Stock Market," The Journal of Business, University of Chicago Press, vol. 71(3), pages 319-347, July.
    6. Mikio Ito & Kiyotaka Maeda & Akihiko Noda, 2018. "The futures premium and rice market efficiency in prewar Japan," Economic History Review, Economic History Society, vol. 71(3), pages 909-937, August.
    7. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    8. Donald T. Sant, 1977. "Generalized Least Squares Applied to Time Varying Parameter Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 6, number 3, pages 301-314, National Bureau of Economic Research, Inc.
    9. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
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