What is Fama French data?

The Fama French 3-factor model is an asset pricing model that expands on the capital asset pricing model by adding size risk and value risk factors to the market risk factors. The model was developed by Nobel laureates Eugene Fama and his colleague Kenneth French in the 1990s.

What does Fama-French model tell you?

The Fama-French model aims to describe stock returns through three factors: (1) market risk, (2) the outperformance of small-cap companies relative to large-cap companies, and (3) the outperformance of high book-to-market value companies versus low book-to-market value companies.

Where can I download Fama French data?

You can find the data on their website at “https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html” We will select and download the Fama/French 3 factors monthly data.

What are the 5 factors in the Fama-French model?

It has been proven that a five-factor model directed at capturing the size, value, profitability, and investment patterns in average stock returns performs better than the three-factor model in that it lessens the anomaly average returns left unexplained.

Why is Fama French better than CAPM?

It means that Fama French model is better predicting variation in excess return over Rf than CAPM for all the five companies of the Cement industry over the period of ten years. Low p values indicate that the coefficients are statistically significant.

What is the difference between CAPM and Fama-French model?

Unlike CAPM which is a single factor model based on relationship between returns and market factor, the Fama-French model is based on stock return having its basis in not one but three separate risk factors: market, size and value or book to market based factor.

How do you make a Fama French portfolio?

The Fama-French Portfolios are constructed from the intersections of two portfolios formed on size, as measured by market equity (ME), and three portfolios using the ratio of book equity to market equity (BE/ME) as a proxy for value.

What is RF in Fama French?

The Fama-French Three Factor Model Formula Where: Return is the rate of return on your portfolio or investment being measured. Rf is the risk-free rate, the rate of return given by a zero-risk asset such as a Treasury bond or bill.

Is Fama French more accurate than CAPM?

Empirical results point out that Fama and French Three Factor Model is better than CAPM according to the goal of explaining the expected returns of the portfolios. However, the paper shows that the results vary depending on how the portfolios are formed.

Why use the Fama French better than CAPM?

Is Fama French A apt model?

The Fama-French Three-Factor-Model (TFM) is based on the Arbitrage Pricing Theory (APT) and is one of the most famous models. The Arbitrage Pricing Theory states that systematic risk is of multidimensional character and is therefore dependent on different economic risk factors.

What is Alpha in 3 factor model?

The final variable of the Fama-French Three Factor model, “a,” represents the investment’s risk. This is more formally known as the investment’s alpha. This is a relatively rarely applied variable. Alpha measures an investment’s ability to beat the market.

Is beta a useful measure under the Fama and French model?

In addition to the market index (so, yes, beta is important in this model as well), the model also incorporates a small minus big factor (i.e. small stocks may be more sensitive to changes in business conditions than large stocks) and a high minus low factor (i.e. high book to market value stocks are more likely to be …

Is Fama French model a theoretical model or an empirical model?

Famous researchers such as Lintner (1965), Black (1972), and Fama and MacBeth (1973) have made several empirical tests of the model and it has been widely criticized for a long time.