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Factor Exposure Analysis 112: Quality vs Growth Factors

What equity factors should be used in a factor exposure analysis?

Nicolas Rabener
10 min read
16 Mar 2025

SUMMARY

  • The number of independent factors in a factor exposure analysis is subjective
  • Typical quality metrics often are unrelated, so should not be combined
  • There is also merit in including the growth factor, even if it does not offer positive excess returns

INTRODUCTION

The Fama-French 3-Factor Model was introduced in 1993 in the paper “Common Risk Factors in the Returns on Stocks and Bonds” by Eugene F. Fama and Kenneth R. French, published in the Journal of Financial Economics. This model incorporated three factors: the market, size, and value factors. In 2015, Fama and French expanded their model by adding the profitability and investment factors.

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