Is omitted variable bias commonly addressed in quant factor modelling? Take an easy example - Fama French 3 factor model, which Mark Carhart later improved explanatory power on using the Carhart 4-factor, and which Fama French themselves improved on using 5-factor. Did Fama French find omitted variable bias on 3-factor - the omitted variable being momentum that Carhart later included?
I know that omitted variable bias is commonly addressed and tweaked in practice - as a junior regressing returns and currencies etc. But I'm surprised that it seems like these economists did not 'notice' omitted variables throughout the development of financial thought.
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