Description Usage Format Details FamaFrench Five Factors Construction Market Equity Variable BE variable BM ratio Six Size/Booktomarket Portfolios Operating Profitability Ratio Six Size/Operating Profitability Portfolios Investment variable Six size/investment portfolios RF variable MKT.RF factor SMB factor HML factor RMW factor CMA factor Potentially Missing Data Underlying Data Providers Kenneth R. French Copyright Source References See Also Examples
FF4.monthly
is the FamaFrench fivefactor monthly data series on U.S. stock
market from 196307 to 202006. The data set also includes the riskfree rate
on 1month U.S. TBill during the same period.
1  data("FF5.monthly")

An xts
object containing observations of FamaFrench Factors on U.S. Stock
Market.
Frequency: Monthly.
Date Range: 196307 to 202006.
Data updated: 20200819 21:56:26 CEST.
RF: A numeric. The riskfree rate on 1month U.S. TBill. See 'RF variable' section below.
MKT.RF: A numeric. The market portfolio proxy return net of riskfree rate factor. See 'MKT.RF factor' section below.
SMB: A numeric. The "Small Minus Big" factor. See 'SMB factor' section below.
HML: A numeric. The "High Minus Low" factor. See 'HML factor' section below.
RMW: A numeric. The "Robust Minus Weak" factor. See 'RMW factor' section below.
CMA: A numeric. The "Conservative Minus Aggressive" factor. See 'CMA factor' section below.
The object consists of 684 rows and 6 columns.
In addition to column definitions, this section contains a glimpse into factors construction and their underlying variables.
The FamaFrench factors are constructed using the six valueweight portfolios formed on size, the six valueweight portfolios formed on size and operating profitability, and the six valueweight portfolios formed on size and investment.
Market equity, also referred to as size and denoted ME, is a firms' financial variable calculated as the product of price times shares outstanding. The stock price is from CRSP, whereas shares outstanding are from Compustat (if available) or CRSP.
Book equity, denoted BE, is a firms' financial variable that FamaFrench construct from Compustat data or is collected from the Moody's Industrial, Financial, and Utilities manuals. BE is the book value of stockholders' equity, plus balance sheet deferred taxes and investment tax credit (if available), minus the book value of preferred stock. Depending on availability, they use the redemption, liquidation, or par value (in that order) to estimate the book value of preferred stock. Stockholders' equity could be reported by Moody's or Compustat, otherwise the authors measure stockholders' equity as the book value of common equity plus the par value of preferred stock, or the book value of assets minus total liabilities (in that order).
The booktomarket ratio of a firm is defined as the ratio between its market equity and book equity:
BM = BE/ME
The portfolios, which are constructed at the end of each June, are the intersections of 2 portfolios formed on size (ME) and 3 portfolios formed on the BM.
The size breakpoints for year t is the median NYSE market equity at the end of June of year t (see K. R. French's Detail for ME Breakpoints).
The BM for June of year t is the book equity for the last fiscal year end in t1 divided by ME for December of t1. The BM breakpoints are the 30th and 70th NYSE percentiles (see K. R. French's Detail for BM Breakpoints).
The operating profitability ratio (OP) used to form portfolios in June of year t is annual revenues minus cost of goods sold, interest expense, and selling, general, and administrative expense divided by the sum of book equity and minority interest for the last fiscal year ending in t1.
The portfolios, which are constructed at the end of each June, are the intersections of 2 portfolios formed on size (market equity, ME) and 3 portfolios formed on profitability (OP). The size breakpoint for year t is the median NYSE market equity at the end of June of year t (see K. R. French's Detail for ME Breakpoints). OP for June of year t is annual revenues minus cost of goods sold, interest expense, and selling, general, and administrative expenses divided by book equity for the last fiscal year end in t1. The OP breakpoints are the 30th and 70th NYSE percentiles (see K. R. French's Detail for Operating Profitability Breakpoints).
The investment ratio used to form portfolios in June of year t is the change in total assets from the fiscal year ending in year t2 to the fiscal year ending in t1, divided by t2 total assets.
These portfolios are constructed at the end of each June and represent the intersections of 2 portfolios formed on market equity, denoted ME, and 3 portfolios formed on investment (INV). The size breakpoint for year t is the median NYSE market equity at the end of June of year t (see K. R. French's Detail for ME Breakpoints). Investment is the change in total assets from the fiscal year ending in year t2 to the fiscal year ending in t1, divided by t2 total assets. The investment ratio breakpoints are the 30th and 70th NYSE percentiles (see K. R. French's Detail for Investment Breakpoints).
The RF
variable refers to the riskfree rate. It depends on the period been
considered and on the country. For example, for U.S. monthly data series is the
one month TBill return.
The RF
data series distributed by K. R. French with the FamaFrench factors
data are usually obtained from Ibbotson Associates Inc. (Morningstar).
With MKT.RF
we indicate the excess return on the market portfolio return proxy,
net of the riskfree rate RF calculated on the same period t, that is
MKT.RF = MKT  RF
or, as it is also commonly denoted in the literature,
MKT.RF = R_{m}  R_{f}
MKT is obtained by FamaFrench as the valueweight return of all CRSP firms that are incorporated in the U.S. and listed on the NYSE, AMEX, or NASDAQ securities markets. These firms must have a CRSP share code of 10 or 11, good shares and price data, at the beginning of the period.
The SMB
(Small Minus Big) factor return variable is the average return on
three (nine) small portfolios minus the average return on three (nine) big portfolios.
Where the number (three or nine) and type (small or big) of portfolios in factors
construction depends on whether the model being considered is the FamaFrench's Threefactor model
or the FamaFrench's Fivefactor model, respectively.
In formulas, for the Threefactor model we express the SMB factor as
SMB = \frac{1}{3}[(Small Value + Small Neutral + Small Growth)  (Big Value + Big Neutral + Big Growth)]
For the Fivefactor model the process is analogous, except that in this case an SMB factor has to be built for each one of the three sets of portfolios based on specific firms' financial fundamentals. Once that is accomplished, their weighted average is taken. We thus obtain
SMB = \frac{1}{3}[SMB_{(B/M)} + SMB_{(OP)} + SMB_{(INV)}]
The HML
(High Minus Low) factor return variable is the average return on
the two value portfolios minus the average return on the two growth portfolios.
That is,
HML = \frac{1}{2}[(Small Value + Big Value)  (Small Growth + Big Growth)]
The RMW
(Robust Minus Weak) is the average return on the two robust operating
profitability portfolios minus the average return on the two weak operating
profitability portfolios,
RMW = \frac{1}{2}[(Small Robust + Big Robust)  (Small Weak + Big Weak)]
K. R. French's Detail for Operating Profitability Breakpoints
The CMA
(Conservative Minus Aggressive) is the average return on the two
conservative investment portfolios minus the average return on the two aggressive
investment portfolios,
CMA = \frac{1}{2}[(Small Conservative + Big Conservative)  (Small Aggressive + Big Aggressive)]
K. R. French's Detail for Investment Breakpoints
In the FamaFranch factors data series missing data are indicated by 99.0, 99.99 or 999. Which value is actually used really depends by the context and the data set at hand, we recommend looking any of those values with suspicion, especially for realworld business use cases when even one basis point count.
Most of the FamaFrench factor data series are constructed from data provided by CRSP/Compustat. Remarkably, these include all data regarding stock prices and firms' fundamentals. In particular, see Changes in CRSP Data, where Prof. K. R. French explains which data changes from the database have affected the data series constructed and used in their research.
There are many other providers involved, examples are Bloomberg, Ibbotson Associates Inc., Morgan Stanley Capital International, Moody's. They are mentioned at the occurence.
All the data series downloaded from Prof. Kenneth R. French's online data library at https://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html are under the most recent (c) Kenneth R. French.
Kenneth R. French's data library K. R. French's Variables Definitions
Fama, Eugene F and French, Kenneth R (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics. Fama, Eugene F and French, Kenneth R (2015). A fivefactor asset pricing model. Journal of Financial Economics.
Davis, Fama, and French (2000). Characteristics, Covariances, and Average Returns: 19291997. Journal of Finance.
The series was generated with GetFactors()
.
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