Abstract
I compare the five-factor model of Fama and French (2015) and the q5-factor model of Hou et al. (2018a) and find that the five-factor model outperforms the q5-factor model in terms of having closer-to-zero estimated error terms, time-series and cross-sectional covariance-to-variance ratios, and time-series variance of coefficient in most of the cases. The results thus suggest that the explanatory variables of the five-factor model are more accurate proxies of the factors stock returns depend on.
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