Quest for a parsimonious factor model in the wake of quality-minus-junk, misvaluation and Fama-French-six factors

Fahad Ali and Numan Ülkü

Finance Research Letters, 2021, vol. 41, issue C

Abstract: Information about expected returns contained in Fama and French's (2018) six-factor model cannot explain the misvaluation (UMO) and quality-minus-junk (QMJ) factor premiums. Results from factor spanning tests, examination of numerous anomaly portfolios and the Barillas and Shanken (2017) and Barillas et al. (2020) procedures suggest that a parsimonious three-factor model comprising the Market, UMO and Momentum factors performs at least comparable to, and in many cases better than, the Fama-French six-factor model. QMJ does not improve the performance of the proposed three-factor model.

Keywords: Misvaluation factor; Quality-minus-junk factor; Fama-French six-factor model; Parsimonious factor model (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2021
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:41:y:2021:i:c:s1544612320316615

DOI: 10.1016/j.frl.2020.101847

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