I'm running two-stage Fama Macbeth regressions with 10 portfolios sorted on industry on the LHS and Fama French 3-factors (excess market returns, SMB, HML) created by using the same stocks on the RHS.
The "issue" that I have is rather low values for R2(31%) and adj R2(11%) for value weighted portfolios. If I equally weight the portfolios R2 is 52% and adj. R2 44%. Are low R2 values to be expected for industry-sorted portfolios for FF3 models?
