Skip to main content
SpringerLink
Log in
Book cover

Analyzing Financial Data and Implementing Financial Models Using R pp 161–191Cite as

Factor Models

  • Chapter
  • First Online:

  • 8497 Accesses

Part of the book series: Springer Texts in Business and Economics ((STBE))

Abstract

This chapter discusses factor models, which are models that explain the variation in expected stock returns using various proxies. We demonstrate how to implement the most popular of these models, which is the Capital Asset Pricing Model (CAPM). We also demonstrate how to implement alternative models, such as the Fama-French three factor model.

This is a preview of subscription content, log in via an institution.

Chapter
USD   29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD   49.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD   64.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Learn about institutional subscriptions

Notes

  1. 1.

    Morningstar Report: Mutual Fund Data Definitions, Ratings and Risk, retrieved from http://quicktake.morningstar.com/DataDefs/FundRatingsAndRisk.html

  2. 2.

    Annual Returns on Stocks, T. Bonds and T. Bills: 1928—Current, retrieved from http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html on January 5, 2014.

  3. 3.

    http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html#Research.

  4. 4.

    We use FF data retrieved in April 2014 in this text. As discussed previously, retrieving FF data at a later date will result in different index numbers. We have to manually inspect the data either in R or, if more convenient, in Excel, so we can identify the correct rows to delete.

  5. 5.

    MarketWatch, Netflix, Cisco fall; Apple jumps after results, July 23, 2013, retrieved from http://www.marketwatch.com/story/netflix-cisco-fall-apple-slips-ahead-of-results-2013-07-23

  6. 6.

    It is also common to use the S&P 500 Index or other broad-based index as the market proxy.

References

  1. Arnott, R., & Lovell, R. (1993). Rebalancing why? when? how often? The Journal of Investing, 2, 5–10.

    Article  Google Scholar 

  2. Binder, J. (1985). On the use of the multivariate regression model in event studies. Journal of Accounting Research, 23, 370–383.

    Article  Google Scholar 

  3. Cochrane, J. (2011). Presidential address: Discount rates. Journal of Finance, 66, 1047–1108.

    Article  Google Scholar 

  4. Crew, N., Gold, K., & Moore, M. (2007). Federal securities acts and areas of expert analysis. In R. Weil, et al. (Eds.), \textitLitigation services handbook (4th ed.). New Jersey: Wiley.

    Google Scholar 

  5. Damodaran, A. (2012). \textitInvestment valuation: Tools and techniques for determining the value of any asset (3rd ed.). New Jersey: Wiley.

    Google Scholar 

  6. Fama, E., & French, K. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33, 3–56.

    Article  Google Scholar 

  7. Fama, E., Fischer, L., Jensen, M., & Roll, R. (1969). The speed of adjustment of stock prices to new information. International Economic Review, 10, 1–21.

    Article  Google Scholar 

  8. Karafiath, I. (1988). Using dummy variables in the event methodology. Financial Review, 23, 351–357.

    Article  Google Scholar 

  9. Koller, T., Goedhart, M., & Wessels, D. (2010). \textitValuation: Measuring and managing the value of companies (5th ed.). New Jersey: Wiley.

    Google Scholar 

  10. Kothari, S. P., & Warner, J. B. (2005). Econometrics of event studies. In: B. E. Eckbo (Ed.), Handbook of corporate finance: Empirical corporate finance. Elsevier/North-Holland.

    Google Scholar 

  11. MacKinlay, A. C. (1997). \textitEvent studies in economics and finance. Journal of Economic Literature, 35, 13–39.

    Google Scholar 

  12. Sharpe, W. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 3, 425–442.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Compass Lexecon, Chicago, Illinois, USA

    Clifford S. Ang

Authors
  1. Clifford S. Ang
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Clifford S. Ang .

Rights and permissions

Reprints and permissions

Copyright information

© 2015 Springer International Publishing Switzerland

About this chapter

Cite this chapter

Ang, C. (2015). Factor Models. In: Analyzing Financial Data and Implementing Financial Models Using R. Springer Texts in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-14075-9_5

Download citation

Publish with us

Policies and ethics

Search

Navigation