Evaluation of Stock Returns of Alpha-Factor Selection Strategy Based on Fama-French Three-Factor Model

Yujun Zhou ()
Additional contact information
Yujun Zhou: Ocean University of China, Department of Haide

A chapter in Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), 2024, pp 326-335 from Springer

Abstract: Abstract Fama-French model is a classic model for predicting stock returns. This paper proposed a new quantitative trading strategy based on the classic multi-factor selection strategy and the Fama-French three-factor model. The strategy uses the model to extract the intercept term in its fitting model. The study uses the S&P500 dataset to simulate the strategy in two time periods, 2000 to 2010 and 2012 to 2022, that these two time periods include two special periods separately, the financial crisis and the new crown epidemic. The result shows that the model cannot predict the intercept value effectively. This original strategy made 0.3% and -2.11% yearly returns with 0.08 and -0.2 Sharpe ratios in the two datasets. Compared to the same time periods on the benchmark (equal-weighted portfolio), equal-weighted portfolios have 2.49% and 9.92% with 0.23 and 0.83 Sharpe ratios in both two datasets. However, using a long-only alpha strategy can improve the performance of both two datasets significantly. Long-only strategy made 9.12% and 18.16% yearly returns with 0.45 and 0.83 Sharpe ratios. Long-only strategy still carries a lot of risks and is significantly influenced by the market situation.

Keywords: Fama-French Three-Factor Model; Alpha; S&P500 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-246-0_40

Ordering information: This item can be ordered from
http://www.springer.com/9789464632460

DOI: 10.2991/978-94-6463-246-0_40

Access Statistics for this chapter

More chapters in Advances in Economics, Business and Management Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().