All Questions
Tagged with factor-investing fama-french
20 questions
1
vote
0
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41
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Does fama-french factors apply 1-day delay between their portfolio formation and the trade? If so, why?
I'm currently replicating fama-french 5 factors using price and financial data.
I applied 1-day delay in calculating daily portfolio returns of factors, which assumes June-end portfolio to be traded ...
- 11
2
votes
1
answer
108
views
Why cannot Fama-MacBeth regression identify a zero-mean factor with explanatory power?
Imagine a factor perfectly explain the return of all the stocks in a universe, and the factor has a zig-zag shape around zero (as shown by the image).
Since the factor perfectly explain the return of ...
- 23
0
votes
0
answers
83
views
How to calculate Fama French & Momentum factor returns during Covid recession using their data website?
We know that Covid Recession lasted during the months of March & April 2020. Using Fama French data, how do you calculate returns for factors such as ...
- 111
2
votes
0
answers
115
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French and Fama - Alpha vs Residuals (Error)
When running a regression to empirically test models like CAPM or the Fama and French Model, why do we test the statistical significance of the intercept? Do we ignore the residual error?
Why not ...
- 21
1
vote
1
answer
634
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How to correctly use Fama-French factors (from investment portfolio perspective)?
I have several questions regarding Fama-French and other (for instance, BAB) equity return factors for practical purposes (portfolio construction, portfolio risk analysis, portfolio return analysis). ...
- 23
0
votes
1
answer
457
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Value factor from Ken French's library
I'm after returns of the Value factor (book-to-market) from Ken French's library. Based on the description, I'm guessing it's this one: ...
- 145
4
votes
0
answers
118
views
How do we know if an additional factor has improved the predictive power of a Fama French 3 factor equity model?
We're building a multi-factor model for climate risk by adding an additional factor for carbon risk on top of a Fama and French 3 factor model. This is open source at https://github.com/opentaps/open-...
- 431
3
votes
0
answers
75
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Fama and French HML and SMB factors
I am investigating the Fama and French model using a Bayesian selection procedure laid out by Barillas and Shanken (2018). When I plot the cumulative probabilities of each factor, I notice that for ...
- 31
3
votes
3
answers
886
views
Why exposure to the profitability factor increases investment premium?
I'm a DIY investor that attempts to put together his market portfolio, tilted to increase factor exposure. Currently, I'm trying to do it based on the French-Fama 5-factor model.
This model contains ...
- 53
0
votes
2
answers
104
views
Equity risk factors with daily rebalancing
I am building some well known equity factors on the S&P for research purposes. It means those are going to be used for general evaluation purposes but do not need to be replicable. Would it be a ...
- 263
1
vote
1
answer
139
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Why do we regress with respect to premiums in factor models like FF?
Factor investing can be explained by factor models, via the factors exposures. For example Fama-French observed that Size and Book-to-Ratio were systematic risks of a portfolio and consequently they ...
- 45
0
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1
answer
603
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Do Fama-French factor portfolios require optimization?
I am going to perform factor crowding analysis for my dissertation and I am struggling to build factor portfolios from the S&P 500 in r.
I built my dataset from the S&P 500 and I am able to ...
- 263
3
votes
1
answer
2k
views
How to orthogonalize Fama French factors?
The Fama French factors (e.g. size, value) are not orthogonal to each other, so when e.g. you want to create a diversified portfolio of factor mimmicking portfolios (factor investing), the correlation ...
- 369
3
votes
1
answer
576
views
Are Fama French Factors market neutral?
I was wondering whether the famous fama-french factors such as e.g. SMB and HML are market neutral? I know that they are long-short factors in the sense that the net investment is essentially zero, ...
- 369
0
votes
0
answers
550
views
Fama-Macbeth Regression: Weird Risk Premia
I just conducted a Fama-Macbeth regression where in the first step I calculated a time-series regression for each individual stock to get three betas (for mkt-rf, smb, hml) for each stock. Then I ran ...
- 63
0
votes
1
answer
1k
views
Fama Macbeth regression with rolling window
I am confused about how to run fama macbeth regressions for portfolios with rolling window. For example if I have 25 portfolios and time period is 50 years(monthly), rolling window period is 5 years. ...
1
vote
0
answers
66
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Are these factor returns are to low?
I have just found a statistics summary of different MSCI factors (based on the Barra Global Total Market Equity Model for Long-Term Investors (GEMLT)).
I wonder why the annual returns are so low ...
- 11
2
votes
1
answer
223
views
Correct choice of SMB factor for regression models
I am currently conducting a performance analysis, where I use the 3-, 4-, and 5-factor models, hence
$R_{it}-R_{Ft}=\alpha+b_{i}RMRF+s_{i}SMB+h_{i}HML$
$R_{it}-R_{Ft}=\alpha+b_{i}RMRF+s_{i}SMB+h_{i}...
- 23
4
votes
2
answers
2k
views
Fama-French Factors in €
I am having a bit of a problem with currency conversion issues. What I do: I sort European stocks based on their book-to-market ratio, each year I form a portfolio (equal-weight) with the 10 stocks ...
- 51
7
votes
5
answers
5k
views
Intuition behind Fama-French factors
In the Fama-French 3-factor model the portfolio returns are explained by
the market
the SMB factor (Small [market capitalization] Minus Big) and
the HML factor (High [book-to-market ratio] Minus Low)...
- 13.8k