Do Factors Matter?

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.