Portfolio Overlapping Bias in Tests of the Fama-French Three-Factor Model

摘要

In the standard approach of the three-factor model of Fama and French (1993), both the test portfolios and the SMB and HML factor portfolios are formed on the basis of size and the book-to-market ratio. Thus, a potential overlapping bias in time-series regressions arises. Based on a resampling method and a split-sample approach, we provide an in-depth analysis of the effect of overlapping for a broad sample of European stocks. We find that the overlapping bias is non-negligible, contrary to what seems to be the general opinion.