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Comparing Cross-Section and Time-Series Factor Models

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  • Eugene F Fama
  • Kenneth R French

Abstract

We use the cross-section regression approach of Fama and MacBeth (1973) to construct cross-section factors corresponding to the time-series factors of Fama and French (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.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Eugene F Fama & Kenneth R French, 2020. "Comparing Cross-Section and Time-Series Factor Models," The Review of Financial Studies, Society for Financial Studies, vol. 33(5), pages 1891-1926.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:5:p:1891-1926.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz089
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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