Questions tagged [fama-french]
The three-factor or the five-factor statistical model created by Eugene Fama and Kenneth French to explain stock returns.
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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 ...
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Issues running Fama French regression for annual portfolios
As part of my master thesis I am planning to do some analysis based on the 3-Factor Fama french model. I am not a quantitative finance person at all, so my question might be extremely basic and I ...
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Fama&French models for asset returns applied to European Market
I am trying to use the F&F 3-factor and 5-factor models for the European Market (monthly data frequency). I downloaded the dataset provided by Fama&French and tried to apply the regressions ...
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Interpretation of significant positive Alpha and negative Momentum
I have observed that my portfolios constructed according to positive ESG criteria consistently show negative alphas and positive momentum, while the portfolios with negative ESG criteria show positive ...
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Interpreting Factor Coefficients for an Emerging Markets Fund against the Market and its Benchmark
I ran CAPM, FF3, FF5 and Carhart models for an emerging markets fund against the FF data for emerging markets and against its own benchmark. I am constantly getting negative SMB's which shows relevant ...
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Interpretation of SMB factor loading
I am wondering about the interpretation of the loading of the SMB factor. Some papers (e.g., here) state that $\beta_{SMB}>0.5$ implies a portfolio is weighted more towards small caps. In other ...
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Analyzing portfolio returns using Fama-French Factors
Here is my problem - I have monthly returns from few portfolios. I also have monthly return from benchmark portfolio. I downloaded F-F 5 factor daily data. Also downloaded Momentum data. Converted ...
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T-Statistics and/or P-Value
using models like fama-french 3 models, in some books like CFA curriculums, it was always mentioned to look at the T-statistics for the magic number '1.96' or 2 which tells us if it is statistically ...
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Fama-French Long-Short portfolios. Is short really necessary? [closed]
I am student here who just touched on Fama-French portfolios. I read from certain articles that while fama-french portfolios are extremely popular in explaining the returns, in real-life, it is quite ...
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Alphas vs. portfolio rank w.r.t. factors in Fama-French 3-factor model
In the Fama-French 3-factor model, is there a point in looking at the relationship between the estimated alphas for the 25 test portfolios and the size-rank or value-rank of these portfolios?
Also, ...
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Error (singularity) in the GRS test applied on portfolios that were used for constructing the Fama-French factors
In the context of the Fama-French 3-factor model, we have six portfolios used for creating the SMB and HML factors: SL, SM, SH, BL, BM, BH. (The notation is: S~small, B~big, L~low, M~medium, H~high). ...
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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 ...
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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 ...
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Risk adjusted returns for a portfolio relative to CAPM
This is very likely a simple question. When following Lewellen (2015) (open access here), how should I compute alphas for portfolio returns relative to the CAPM and FF3? Do we simply subtract the (...
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FM regressions for size groups when examining a cross section of expected stock returns
When doing FM regressions for size groups similar to Lewellen (2015) (open access here), should I obtain the cross sectional rolling return window betas using only the size group? (E.g only use large ...
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Fama-French Regression Output Interpretation (Intercept/Alpha)
I am currently doing a report regarding Fama and French 3 and 5 factors model. I was provided 3 companies with each of its daily stock return from 2015-2020, and the values of all 5 factors during ...
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Is sorting stocks into portfolio mandatory in Fama-French model?
I am currently doing a report regarding Fama and French 3 and 5 factors model. I was provided 3 companies with each of its daily stock return from 2015-2020, and the values of all 5 factors during ...
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Should I use common equity or total equity for book value? (when replicating Lewellen's 2015 paper on a cross section of expected stock returns)
I'd hereby would like to ask if any of you know whether I should use common equity or the total equity value, when computing monthly BM ratio's as done by Lewellen is his 2015 paper on a cross section ...
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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 ...
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Fama / French 3 Factor Data Not Giving Expected Results
I'm toying around w/ the Fama-French 3 factor data, and I'm having a hard time getting results that approximate what was covered in their paper here: https://www.bauer.uh.edu/rsusmel/phd/Fama-...
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equities hedging betas for a cross-sectional risk model
This question is on equities risk models. I would like to know how to define betas when using a cross-sectional regression approach, rather than the time series approach. My goal is beta hedging of a ...
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Fama-Macbeth Two Step Confusion
I am attempting to replicate the work from "Individualism and Momentum around the World" (Chui, Titman, Wei, 2010, ...
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The original standard error estimation of Fama and French (2015) paper
I have a question about the estimation method of the original paper of Fama and French (2015) regarding the five factor model and the t statistics. Are they using non-robust standard errors or are ...
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Fama French Factor adjusted returns
I want to understand the extent to which portfolio performance can be explained by the three Fama French Factor model. I use the following approach:
Regress the portfolio's excess returns against the ...
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Luck versus Skill in Mutual Fund Returns (Fama-French 2010)
I am reading carefully Luck versus Skill in Mutual Fund Returns (Fama-French 2010), and actually trying to replicate their findings. I have always found Fama-French papers well written, but they seem ...
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How to calculate returns of a portfolio with rebalancing? [closed]
I would like to compare the performance between a portfolio with the 30% of firms in S&P500 that have the highest ESG score to a portfolio with the 30% with the lowest ESG score. Then I would like ...
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Issue in Fama-French 3 factors Model
I hope you are doing well.
As part of my thesis, I built 12 portfolios of 200 randomly selected stocks. I now want to calculate the Bs of the 3 Fama French factors for each stock, so that I can ...
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Portfolio factorization for portfolio optimization
I am looking to do some basic portfolio constructions as an experiment to learn more about it. I have been researching a bit and what I have found is that one of the purposes of factors models (Fama-...
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Nominal vs. real (inflation-adjusted) prices/returns in cross-sectional asset pricing
I have the impression that asset pricing models such as the CAPM or Fama & French 3 factor model typically concern nominal rather than real (inflation-adjusted) prices/returns. If this is indeed ...
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Squared Sharpe Ratio - Fama and French
I am investigating various versions of nested and nonnested Fama and French factor models. Performance of the models is compared on the basis of Squared Sharpe Ratios. Bariallas et al. (2020, JFQA) ...
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What does Fama-Macbeth regression model alpha (intercept) measure?
I did a fama-macbeth regression and got alpha of over 2.3%. Dependent variable is monthly returns and independent variables are ln(size) and ln(book-to-market). I was just wondering what does the ...
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Fama-French factor model: why mimicking portfolios?
I am trying to understand the Fama-French factor model, or any kind of CAPM extensions really. What is really puzzling me is the use of mimicking portfolios. Fama and French create mimicking ...
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CAPM model formula for zero cost portfolio?
Let's say I want to run a series of regressions for zero-cost portfolio Y that goes long on stocks based on high variable x and short stocks with a low variable of x. How do I run the regression, for ...
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Good guide to test a new 'factor' and control using other factors in regression model (like Fama French)?
I'm trying to get a better understanding of different ways one can test a new factor within the Fama-French framework?
For example, some questions I have are:
I want to test if Warren Buffet is in a ...
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Value: High-minus-low factor fama french - transaction costs
Anyone know any references on how to estimate transaction costs for a give trading strategy?
In more specific terms, if I want to estimate the returns on an HML value strategy as in Fama-French 1993, ...
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Clustered vs. GMM-based standard errors: which ones to use in asset pricing?
Consider estimating an asset pricing model such as the CAPM or a multifactor model using monthly data. Petersen (2009) section "Asset pricing application" suggests use of standard errors ...
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What ETFs and mutual funds track the Carhart 4 factors best? I.e. how to replicate these factors cheaply?
I am looking for a portfolio of ETFs and mutual funds that tracks market, size, value and momentum factors.
One ETF/mutual fund per factor. So say that I want an ETF that tracks the value factor (let'...
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How do I interpret my Fama-French and Carhart factor coefficients?
I am required to prepare a portfolio containing 10 companies and analyse their returns over 10 years utilising the Fama-French 3 factor and Carhart 4 factor models. I chose the largest market cap ...
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intercepts in spanning regression
what does a negative and a positive intercept imply in spanning regression or factor redundancy test? For example, value factor is regressed on the mkt, smb, rmw, and cma and the intercept is negative ...
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Fama-French 3Factor Model alpha
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.
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Existence of an upper bound for risk-factor betas/coefficients
Theory:
Based on Hansen/Jagannathan, the set of means and variances of returns is limited. With $R^f$ as the risk-free rate, $R_i^e$ as the return of stock $i$ in excess of $R^f$ and a stochastic ...
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How you explain that result?
I'm reading this paper :
What Does the Individual Option Volatility
Smirk Tell Us About Future Equity Returns?
Yuhang Xing, Xiaoyan Zhang, and Rui Zhao∗
In section 2. A i found this equation:
... And ...
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Fama French Model; 5 Factors yield higher alpha than 3 Factors [closed]
I am currently running some Fama French regressions for a number of specified portfolios, consisting of US stocks (for a university level course). The regressions are conducted in R, using the lm ...
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How to interpret the results of Fama-MacBeth regressions? [closed]
I recently conducted a project for university, where I calculated the risk factors of the Fama-French 3Factor Model. For "SMB", the "size-premium", I get a negative result. What ...
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How to introduce fees into the returns of a mutual fund?
In the paper by Fama & French (2010) Luck versus Skill in the Cross-Section of Mutual Fund Returns, from J. of Finance (link)
the following table is given (Table II, page 1920):
But they do not ...
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WML factor on French's web site
On Prof. French's web site we have the following
http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/f-f_developed.html
WML is the equal-weight average of the returns for the two ...
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CRSP Permco Aggregation
I saw that for one CRSP Permco, there could be multiple CRSP Permnos. Could anybody provide guidance on how to aggregate the market capitalization, returns, etc... by permco and date? I am currently ...
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How do you cross-sectionally standardize a variable?
i am doing research on a so-called carbon beta where I made a portfolio that takes a short position in 'green' stocks and a long position in 'brown' stocks, from a period of 2005 until 2020. So from ...
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Should I include factor loadings as explanatory variables for regression of abnormal and raw returns?
My research is to explain stock returns in a regression model. My dependent variable is raw returns and abnormal returns calculated from 3-factor model (Fama and French). Besides regressing against my ...
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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). ...
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