Value Regimes


There have been several measures of value in recent years, and for this paper, we choose quality-minus-junk (QMJ) to test the pricing of two asset pricing models. Fama-French 5 factor model and the lesser-known, q-factor model. We utilize a Hidden Markov Model to identify three different regimes as the parameters may not be constant throughout. The results indicate the existence of value in the form of quality, and the factor loadings on Size, HML and alpha appear to be significant as we move from one portfolio to the next.