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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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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 ...
Gugu's user avatar
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4 votes
2 answers
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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 ...
Max's user avatar
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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 ...
deb's user avatar
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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 ...
Xenowills's user avatar
2 votes
1 answer
177 views

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 ...
Xenowills's user avatar
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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, ...
Richard Hardy's user avatar
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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). ...
Richard Hardy's user avatar
2 votes
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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 ...
Shawn Hsueh's user avatar
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49 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 ...
Maddy's user avatar
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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 (...
Julien Maas's user avatar
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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 ...
Julien Maas's user avatar
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143 views

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 ...
NewbieFinance's user avatar
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1 answer
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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 ...
NewbieFinance's user avatar
3 votes
1 answer
405 views

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 ...
Julien Maas's user avatar
2 votes
0 answers
94 views

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 ...
Lusitano's user avatar
4 votes
1 answer
439 views

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-...
Jonathan Bechtel's user avatar
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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 ...
jam123's user avatar
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3 votes
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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, ...
Kamini Solanki's user avatar
3 votes
0 answers
88 views

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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How to get Fama-French Factors for current month

I have developed a strategy based, among other things, on the Fama-French model. For the backtest I used the factors from Ken French web side. But there are only historical factors calculated until ...
Martin132's user avatar
1 vote
1 answer
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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 ...
New Guest's user avatar
2 votes
0 answers
133 views

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 ...
phdstudent's user avatar
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1 vote
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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 ...
Jess's user avatar
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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 ...
Sky-Jays's user avatar
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Alpha form of t-test

I have return data on several stocks that is regressed on two models. If I now want to compare if the estimated alpha differences between the two models are different from 0, do I use a unpaired t-...
Rizei's user avatar
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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-...
deblue's user avatar
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3 votes
1 answer
114 views

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 ...
Richard Hardy's user avatar
2 votes
0 answers
107 views

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) ...
Rizei's user avatar
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85 views

equities industry factor models

I am looking for references or practical solutions for the following. In the usual factor approach for equities with panel data regression (for each stock, explain future returns given stock ...
jam123's user avatar
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1 vote
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143 views

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 ...
JH1's user avatar
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7 votes
2 answers
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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 ...
deblue's user avatar
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0 answers
118 views

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 ...
JH1's user avatar
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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 ...
we_are_all_in_this_together's user avatar
1 vote
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69 views

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, ...
phdstudent's user avatar
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6 votes
0 answers
155 views

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 ...
Richard Hardy's user avatar
3 votes
0 answers
168 views

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'...
phdstudent's user avatar
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2 votes
1 answer
320 views

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 ...
YasG's user avatar
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1 vote
0 answers
187 views

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 ...
Mehak Younus's user avatar
1 vote
1 answer
136 views

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. ...
Terminator6677's user avatar
4 votes
1 answer
236 views

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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3 votes
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131 views

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 ...
TheFutureIsQuant's user avatar
4 votes
0 answers
156 views

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 ...
14896236842145's user avatar
1 vote
0 answers
67 views

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 ...
Joe's user avatar
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1 vote
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66 views

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 ...
Mick's user avatar
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0 votes
0 answers
426 views

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 ...
nbbo2's user avatar
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2 votes
0 answers
101 views

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 ...
Guyon Van Rooij's user avatar
1 vote
0 answers
175 views

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 ...
Edgar Bloemendaal's user avatar
1 vote
0 answers
46 views

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 ...
Grisha's user avatar
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1 vote
1 answer
488 views

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). ...
rsx's user avatar
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0 votes
1 answer
2k views

Standard Industrial Classification (SIC) Code in Compustat Fundamentals

I would like to sort companies according to the Fama-French 48 industry levels. For that, I need the Compustat Standard Industrial Classification (SIC) code. In the web interface of WRDS, I could ...
LisaBinder's user avatar

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