I have 2 questions which i can't seem to find no matter how I search. so:
1) If we have 2 portfolios. One based on risk-return tradeoff (with variables HML, SMB and beta ) (Fama French, 1993) and the other one based on the characteristics approach (Daniel & Titman, 1997) (still with market beta, size and book to market as variables) how to we compare which is better apart from the Sharpe ratio? With the t-stat of their coefficients?
2) Can someone please explain the difference between the factor and characteristics as variables for the returns of stocks?
PS sorry if i am not clear enough but even I can't grasp exactly the idea