Creating Fama and French Factors with Style

Robert Faff

The Financial Review, 2003, vol. 38, issue 2, 311-322

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.

Date: 2003
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