Construct Fama and French Three and Five Factor Model | Part1
In this video we discuss how to construct Fama and french 3 factor model and the five factor model. We also discuss the difference between univariate portfolio sort and bivariate portfolio sort. Bivariate portfolios are divided into bivariate independent sort and bivariate dependent sort. We also look into different breakpoints or cutpoints used to divide stocks into portfolios. Then we discuss value weighted and equal-weighted portfolio return. Lastly we discuss how to form Fama and french three factors i.e. SMB and HML. The size factor is constructed using market capitalizaiton, whereas the value factor is constructed using book to market ratio. In next video we will discuss how to construct fama and french factors in Stata, R and python.
Download Stata code to construct FF 3 and 5 factor model
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Download PowerPoint presentation used in this video
https://payhip.com/b/N3atE
00:00 CAPM VS FF Model
2:44 Univariate Portfolio
11:38 Bivariate Independent Sort
18:24 Bivariate Dependent Sort
20:58 Portfolio Cutoff/Break point
26:11 Value weighted VS Equal weighted portfolio
27:38 SMB and HML construction
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