By using the Fama and MacBeth methodology, I have identified the significant factors that explain the returns of my stocks. Now, I want to build a portfolio and backtest it.
For that, I am trying to use the Mean(factor loadings) and the respective betas. However, to calculate the expected return, should I take only the SIGNIFICANT factors or ALL THE FACTORS? P.S. : I only have one significant factor.
Thanks in advance, Vaibhav