Creating Fama and French Factors with Style

Author: Faff R.W.

Source: The Financial Review, Volume 38, Number 2, May 2003 , pp. 311-322(12)

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Abstract:

This paper utilizes Frank Russell style portfolios to create useful proxies for the Fama and French (1992) factors. The proxy-mimicking portfolios are shown to represent a pervasive source of exposure across U.S. industry portfolios and to generally possess similar properties to those utilized in the finance literature. Further, a set of multivariate asset-pricing tests of the three-factor Fama and French asset-pricing (FF) model based on the proxy factors fails to reject the model. However, these tests do not reveal strong evidence of significantly positive risk premiums, particularly in the case of the size and book-to-market factors.

Keywords: Fama and French factors; style indexes; G12

Document Type: Research article

DOI: http://dx.doi.org/10.1111/1540-6288.00048

Affiliations: 1: Monash University

Publication date: 2003-05-01