Breaking down anomalies: comparative analysis of the q-factor and fama-french five-factor model performance

Abstract

The continuous development of the asset pricing supplies investors and researchers with the new empirical models and it might get challenging to pick one to use. This thesis provides an empirical comparison of the Fama-French 5-factor model and q-factor model. The analysis is performed on the value-weighted portfolios formed on the five anomalies. We perform intercept study and employ Fama-MacBeth methodology. Our findings suggest that q-factor model is superior in performance compared to the Fama-French revised model; however, none of the models is complete. Analyzed anomalies are likely to be proxies for some priced risk factors and might be used to improve the models.