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luminaryfi
7 sep 2020 00:50

Fama-French 3 Factor Model 

SP:SPX120
S&P 500SP

Beskrivning

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Fama-French 3 Factor Model


Extension of the Capital Asset Pricing Model (CAPM)

CAPM
Ra = Rfr + [βa * (Rm - Rfr)]

where,
Ra = Return of the Asset
Rfr = Risk-Free Rate
βa = Beta Coefficient of the Asset
Rm - Rfr = Market Risk Premium

Fama-French 3 Factor
r = rf + β1*(rm - rf) + β2(smh) +β3(hml)

r = Expected rate of return
rf = Risk-free rate
ß = Factor’s coefficient (sensitivity)
(rm – rf) = Market risk premium
SMB (Small Minus Big) = Historic excess returns of small-cap companies over large-cap companies
HML (High Minus Low) = Historic excess returns of value stocks (high book-to-price ratio) over growth stocks (low book-to-price ratio)


Small is set to EWSC
Invesco S&P SmallCap 600® Equal Weight ETF

Big is set to EQLW
Invesco S&P 100 Equal Weight ETF

High is set to IUSV
iShares Core S&P US Value ETF

Low is set to IUSG
iShares Core S&P US Growth ETF

returns selections
'returns'
'logarithmic returns' (use for realized (historical) returns)
'geometric returns' (compounded returns)

risk-free rate selections:
DTB3
DGS2
DGS5
DGS10
DGS30

tf = primary time-frame
rtf = reference time-frame



Versionsinformation

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// log-returns set as default

Versionsinformation

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//plotting change

hline scale:

ln = natural logarithm

ln (3)
ln (9)
ln (27)
ln (81)
ln (248)
VolatilityTrend AnalysisBreadth Indicatorsfamafama-frenchequityfactorsSPX (S&P 500 Index)marketcapbetacorrelation
Kommentarer
Yelian
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What is the interpretation of the output in this script? Is it what the required rate of return or discount rate should be based on Fama-French?
cyberspider789
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@Yelian, You need to study FAMA and French 3 Factor model for portfolio management to understand this script
Yelian
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@cyberspider789, I'm familiar with Arbitrage Pricing Theory and FF as I have a graduate degree in finance, I'm just not clear on what the output of the script is.
cyberspider789
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@Yelian, My bad....as far as I can understand it is trying to provide monthly statistic of FF model for a portfolio defined at start of the code...
Yelian
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@cyberspider789, Thanks for the reply. I'll just maybe have to sit down one day and pay more attention to it. Do you use this script? If so, how do you apply it personally?
BSSKN
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One comment for a state of the art asset selection tool. Whats wrong with retail ffs ... great job mate !
luminaryfi
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For information on how the Fama-French model is used in quantitative analysis...

Check out these sites
corporatefinanceinstitute.com/resources/knowledge/finance/fama-french-three-factor-model/
investopedia.com/terms/f/famaandfrenchthreefactormodel.asp
Mer