The Fama-French 3 Factor Model Prediction and Evaluation of Portfolio

Yangrui Deng

doi:10.62051/ijgem.v4n2.15

Authors

Yangrui Deng

DOI:

https://doi.org/10.62051/ijgem.v4n2.15

Keywords:

Multi-factor approaches, Diversified portfolio, Market swings

Abstract

This research assesses the performance of a diversified portfolio, including 20 common shares drawn from two industries, that was constructed in January 2024 and held until December 2024. It uses rigorous multi-factor approaches to evaluate each asset's risk characteristics and financial returns using historical data from 2020 to 2023. To offer empirical insights into portfolio dynamics, key indicators include total portfolio returns, standard deviation for volatility, and beta coefficients to measure susceptibility to market swings.

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References

[1] Fama, E.F., French, K.R. 1992. The cross-section of expected stock returns. Journal of Finance 47, 427-465.

[2] Fama, E.F., French, K.R. 1993. Common risk factors in the returns on stock and bonds. Journal of Financial Economics 33, 3–56.

[3] Fama, E.F., French, K.R. 1996. Multifactor explanations of asset pricing anomalies. Journal of Finance 51, 55-84.

[4] Sharma, R., & Mehta, K. (2013). Fama and French: Three factor model. SCMS Journal of Indian Management, 10(2), 90.

[5] Yiming, W., Xun, L., Umair, M., & Aizhan, A. (2024). COVID-19 and the transformation of emerging economies: Financialization, green bonds, and stock market volatility. Resources Policy, 92, 104963.

[6] The data is used from table “Exclude the market portfolio. Use the rescale weight.”

[7] This is calculated by last four-year data. The risk and return come from 2023.