On the Use of the Daily Fama–French Risk-Free Rate

Vol. 19, No. 3, 2021

Joshua C. Fairbanks, Mark D. Griffiths and Drew B. Winters

The Fama and French (1992) risk-free rate is used throughout the extant finance literature. The daily risk-free series has issues that raise concerns about its use as a benchmark. We detail the issues and discuss viable low-cost alternatives. We suggest the use of an adjusted one-year constant maturity rate for empirical analysis dating back to July 1, 1963. Our empirical results suggest that the choice matters in short-run analyses or single-day event studies, but not in studies that employ long-run averages, as is typical in asset-pricing research. We also document an interesting methodological division in empirical academic financial analysis.