A Study on the Determinants of Stock Returns, in Comparison of the Fama-French Models

Abstract

This paper mainly focuses on the determinants of stock returns. The proposed method to solve the problem is to use R Studio to build 3-factors and 5-factors Fama-French models. We chose 6 portfolios from Yahoo Finance and built 3-factors and 5-factors models for each of them. Through significance test (p-value, parameter coefficients, R2, adjusted R2, confidence intervals, etc) and multicollinearity checking, both the 3-factors model and 5-factors model work on these six portfolios. Based on our analysis of the models, the market excess return and value premium have larger impact on the 6 portfolios. Size premium also seems to have a great impact on these portfolios, except portfolio 6. The regression coefficient of portfolio 6 over size premium is small and failed the significance test. This may be because of portfolio 6 itself.