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I'm calculating Fama-French portfolio returns for a country, to test the sign and significance of alphas for portfolios sorted by my variable of interest. I can't use Fama-French data library factors as these are not specific enough to my country.

My question is that, if i'm assessing returns and alphas for 10 different portfolios, formed based on a variable requiring 5 years of past data - should I only include stocks with 5 years of past return data in the construction of my SMB, HML and other Fama-French factors? Or should I instead include all stocks?

Edit: Still looking for help on this if someone is able to help me out!

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    $\begingroup$ Include all stocks, and balance portfolios accordingly. $\endgroup$
    – phdstudent
    Commented Jul 8, 2020 at 16:28
  • $\begingroup$ This conflicts with the answer given by Prabhnoor - can I ask why I would include all stocks as opposed to excluding those without 5 years of return data? $\endgroup$
    – Tim Allen
    Commented Jul 10, 2020 at 9:30

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Include all the stocks having the data of at least last 5 years.
Pick up a general index of your country(the one you want to work with) and get the data for all the stocks listed in that index. Exclude the ones that have less than 5 years of data and proceed with the rest.

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  • $\begingroup$ This answer conflicts with phdstudent's answer - what's the rationale for excluding stocks without the 5 years of data? $\endgroup$
    – Tim Allen
    Commented Jul 10, 2020 at 9:43

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