Business Finance , FIN The PDF is the guidelines for the project. The Working Doc is where the answers will be typed, and the Excel is where work will be shown. I have already put all of the necessary Data for Part 1 in the excel file, so part 1 can be started.
Fama French Five Factor Asset Pricing Model
Our Model Goes to Six and Saves Value From Redundancy Along the Way
Fama-French 5-factor model: why more is not always better
Update I extended the data to end of and corrected a mistake in the adjusted returns computation. This note is an effort to replicate the famous Fama-French three-factor model , in particular the three factors that enter its equation: the market factor, the size factor small firms outperform larger firms , and the value factor firms with high book-to-market equity ratios outperform firms with low ratios. Throughout this note, I build on earlier posts that explored empirical asset pricing approaches in a similar direction. Namely, I constructed the CRSP stock return sample , I estimated stock-specific market betas , and I analyzed the relation between stock returns and size and I replicated the value premium.
This model considers the fact that value and small-cap stocks outperform markets on a regular basis. By including these two additional factors, the model adjusts for this outperforming tendency, which is thought to make it a better tool for evaluating manager performance. Nobel Laureate Eugene Fama and researcher Kenneth French, former professors at the University of Chicago Booth School of Business, attempted to better measure market returns and, through research, found that value stocks outperform growth stocks.