I am currently working on an industry specific time series analysis of European Equities between 201001 and 201812. I use the European Fama French factor returns (plus the momentum factor return) that have been provided by Kenneth French on his website. I set up in total 7 portfolios for my industry returns. 1 value weighted. 3 sorted by size and 3 sorted value, which are all equally weighted. I run the returns for the portfolios against the factors. in total I end up with 21 outputs, given I run all three types of models for the 7 different portfolios. Anyone an idea why the R2 are so low?

Whereas R2 is of course not the most interesting or relevant component of my or any FF model analysis, I do wonder why it is as low as I have found.

R2 for the various portfolios and models

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  • $\begingroup$ Welcome @phk31 on Quantitative Finance SE! Could you please edit your question and provide some summary statistics for your seven portfolio returns? This seems necessary to give a detailed answer. However, did you calculate your portfolio returns in US-Dollar or local currency (because FF-factors are calculated in USD)? $\endgroup$ – skoestlmeier May 3 at 8:05
  • $\begingroup$ I will provide them shortly. The prices and fundamental data are calculated exclusively in Euro and I only included Euro Area companies. I understand but would the variation in forex diminish the model so greatly? $\endgroup$ – phk31 May 3 at 8:10

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