Fama-MacBeth Regressions

The Link between Fama-French Time-Series Tests and Fama-Macbeth Cross-Sectional Tests ArXiv ID: ssrn-1271935 “View on arXiv” Authors: Unknown Abstract Many papers in the empirical finance literature implement tests of asset pricing models either via Fama-French time-series regressions or via Fama-Macbeth cros Keywords: Asset Pricing Models, Fama-French Regressions, Fama-MacBeth Regressions, Empirical Finance, Cross-Sectional Returns, Equity Complexity vs Empirical Score Math Complexity: 3.5/10 Empirical Rigor: 8.0/10 Quadrant: Street Traders Why: The paper’s mathematical framework relies on established econometric and asset pricing models, which are advanced but not unusually dense; however, it heavily emphasizes empirical implementation, using real financial data and detailed testing methodologies. flowchart TD A["Research Goal: Test Asset Pricing Models"] --> B{"Choose Methodology"} B --> C["Fama-French Time-Series Regressions"] B --> D["Fama-MacBeth Cross-Sectional Regressions"] C --> E["Input: Time-Series Data Portfolio Returns & Factors"] E --> F["Compute: Regression R_it - R_ft = α_i + β_i Factor_t + ε_it"] D --> G["Input: Cross-Sectional Data Cross-Section of Returns at Each Time t"] G --> H["Compute: Regress Returns on Risk Factors Across Assets at Each t"] F --> I["Key Finding: Link & Equivalence Under Null Hypothesis"] H --> I style A fill:#e1f5fe style I fill:#f3e5f5