Risk premium contributions of the Fama and French mimicking factors

Matthias Bank and Franz Insam

Finance Research Letters, 2019, vol. 29, issue C, 347-356

Abstract: We take a new look on the Fama and French (1993) three-factor asset pricing model by extracting risk premium contributions for each factor based on solving a system of linear equations. The risk premium contributions become uncorrelated with the underlying factor excess returns and capture the isolated compensation of a given risk factor. We show that the risk premium contributions feature a January-seasonality, which exhibits a negative shift after the year 1993. Furthermore we find that after 1993 the risk premium contributions of the SMB and HML factor are strongly related to sentiment and predictable by dividend yield.

Keywords: Asset pricing; Fama–French model; Risk premium contributions; Decomposition; Predictability; January effect (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:29:y:2019:i:c:p:347-356

DOI: 10.1016/j.frl.2018.08.017

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