Daily Archives: Jan 19, 2018 at 06:42 am EST

Research Review | 19 January 2018 | The Business Cycle

Fama-French Factors and Business Cycles
Arnav Sheth and Tee Lim (Saint Mary’s College of California)
December 4, 2017
We examine the behavior of Fama-French factors across business cycles measured in various ways. We first split up the business cycles into four stages and examine the cumulative returns of factors in each of those stages. We then look at the behavior of the factors after a yield curve inversion starts and ends, as the relationship between yield curve inversions and recessions has been well-explored. We finally run a logistic regression to test the predictive power of the term spread on the NBER recession indicator. Our results show that there is an effect on the factors of each of our four stages, and there is limited predictive power from the recession probabilities. We believe this is of practical importance to portfolio managers who are factor-oriented in their approach.
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Macro Briefing: 19 January 2018

House approves funding bill to keep gov’t open, but Senate may block it: The Hill
International Energy Agency: US oil output set for “explosive growth: Bloomberg
Consumer Financial Protection Bureau’s acting dir requests zero funding: Politico
US housing starts down sharply in Dec but post solid gain for 2017: WSJ
US jobless claims tumble to lowest level since 1973: Bloomberg
US Treasury yields at highest levels since 2014: Reuters
Scientists document a century-long bull market in global temperatures: NY Times