Critical Finance Review > Vol 14 > Issue 3

Do Factors Matter?

By Tim Loughran, Mendoza College of Business, University of Notre Dame, USA, Loughran.9@nd.edu

 
Suggested Citation
Tim Loughran (2025), "Do Factors Matter?", Critical Finance Review: Vol. 14: No. 3, pp 329-355. http://dx.doi.org/10.1561/104.00000160

Publication Date: 07 Jul 2025
© 2025 Tim Loughran
 
Subjects
 
Keywords
G12G14G34G40
Fama–French 6-factorq5-factorq-factorMarket efficiencyEquity issuers
 

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In this article:
1. Empirical Design and Data 
2. Empirical Results 
3. Fama and MacBeth (1973) Cross-Sectional Monthly Regressions of the q5-Factor Characteristics 
4. Conclusion 
Appendix. Variable Definitions for the Fama and French 6-Factor Model and the Hou et al. (2021) q5-Factor Model 
References 

Abstract

Over the past generation of market returns, factors only matter for small firms. The Fama and French (2018) 6-factor and the Hou et al. (2021) q5-factor models are commonly used to measure the performance of stock return portfolios. Importantly, I find that most of the Fama and French and q5-factor firm-level characteristics have not worked for large capitalization firms for quite a long time (i.e., 1983–2021). Small firms comprising less than 8% of the total market capitalization drive the patterns of the factor models. This paper also reexamines equity issuer performance within the context of the factor firm-level characteristics.

DOI:10.1561/104.00000160