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I just conducted a Fama-Macbeth analysis to estimate the risk premia of Fama/French.

In short, I estimated the betas on a company-individual basis first and then conducted a cross-section regression resulting in risk premia (t=1 to t=235). Subsequently a simple average of the risk premia was calculated.

Now I'm wondering if it's technically correct/allowed to calculate an average of the R2 of regression (t=1 to t=235) and make a statement about the "overall" R2 of the multifactor modell in comparison to the simple CAPM I calculated earlier.

Essentially I just want to say adding the factors (should've) increased the R2 of the model. Just not sure if I can do it with the Fama-Macbeth regressions or if I have to do a normal FF three-factor regression as well.

Thanks.

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  • $\begingroup$ Couldn’t you do all $235$ in one regression equation? $\endgroup$
    – Dave
    Dec 31, 2021 at 14:13

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