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I have different large datasets consisting of 1000 stocks each. I want run a FF3 regression

I regress my monthly returns (minus riskfree rate) of the dataset against the Mkt-RF, SMB and HML factor.

But as alpha I always receive a value which is close to zero (0.001)

For Beta1 (MKT-RF) I receive 1.08 Beta2 (SMB) 0.268 Beta3 (HML) -0.069

Adjusted R^2 is 0.985

Can that be correct and if yes, how can i interpret this? I am very insecure because I always receive an alpha of 0

Thanks for your help

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  • $\begingroup$ In principle, it can happen. But it is more common to find a positive, non significant alpha. It is too close to zero. A negative coefficient for HML and R2 of 0.99 are also unusual. What is the time period? Is it for the US? $\endgroup$
    – Andre
    Jun 21, 2023 at 21:22

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It is perfectly possible to get zero alpha (specially if you are looking at returns of mutual funds/ETFs). With individual stocks you are likely not to get zero alpha. If you edit your question to mention the time-frame and give an example of a stock or two, I can quickly replicate your regressions.

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