Are the Fama–French factors good proxies for latent risk factors? Evidence from the data of SHSE in China
This paper applies the new procedure developed by Bai and Ng (2006a) to explore the relation between the Fama–French factors and the latent risk factors in China’s stock market. The results show that the Fama–French factors are good proxies for risk factors of portfolios. For individual stock, only the Market factor is appropriate to proxy risk factors, while the other proxies we consider are not.
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