Fama French Factors and US Stock Return Predictability

This paper investigates whether the HML, the SMB along with the short-term reversal, the long-term reversal and the momentum factors exhibit both in-sample and out-of-sample forecasting ability for the US stock returns. Our findings suggest that these factors contain significantly more information for future stock market returns than the typically employed financial variables. We also go one step further and test whether these variables can proxy for the aforementioned factors. Our results suggest that the default spread and to a lesser extent the term spread contain important information for the evolution of the factors examined