Q4.monthly: Hou-Xue-Zhang q-factor Four-Factors Data Set

In JustinMShea/ExpectedReturns: Reproduction of Investment Strategies presented in Antti Ilmanen's Expected Returns and Investing Amid Low Expected Returns

Hou-Xue-Zhang q-factor Four-Factors Data Set

Description

Q4.monthly is the Hou-Xue-Zhang q-factor four-factors monthly data series on U.S. stock market from 1967-01 to 2019-12. The data set also includes the risk-free rate on 1-month U.S. T-Bill during the same period.

Usage

data("Q4.monthly")

Format

An xts object containing observations of Hou-Xue-Zhang (2015) q-factor four-factors data set on U.S. Stock Market, and the risk-free rate on 1-month U.S. T-Bill.

• Frequency: Monthly.

• Date Range: 1967-01 to 2019-12.

• Data updated: 2020-08-20 19:32:19 CEST.

• RF: A numeric. The risk-free rate on 1-month U.S. T-Bill. See 'RF variable' section below.

• MKT.RF: A numeric. The market portfolio proxy return net of risk-free rate factor. See 'MKT.RF factor' section below.

• ME: A numeric. The size factor. See 'ME factor' section below.

• IA: A numeric. The investment factor. See 'IA factor' section below.

• ROE: A numeric. The profitability factor. See 'ROE factor' section below.

The object consists of 636 rows and 6 columns.

Details

In addition to column definitions, this section contains a glimpse into factors construction and their underlying variables.

Q-Factors construction

Authors construct their size, investment, and Roe factors from independent, triple 2x3x3 portfolio sorts on size, investment-to-assets (I/A), and Roe.

Taking the intersection of the two size, three I/A, and three Roe groups, they form eighteen portfolios. Monthly value-weighted portfolio returns are calculated for the current month, and the portfolios are rebalanced monthly.

RF variable

The RF variable refers to the risk-free rate. It depends on the period been considered and on the country. For example, for U.S. monthly data series is the one month T-Bill return. The RF data series distributed by K. R. French with the Fama-French factors data are usually obtained from Ibbotson Associates Inc. (Morningstar).

BE variable

Book equity, denoted BE, is a firms' financial variable that Fama-French 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).

Market Equity Variable

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.

Investment-to-assets variable

Investment-to-assets (I/A) is the annual change in total assets divided by one-year-lagged total assets.

Return on Equity variable

The return on equity ratio (ROE) authors consider is the income before extraordinary items divided by book equity (BE) lagged by a quarter.

MKT.RF factor

With MKT.RF we indicate the excess return on the market portfolio return proxy, net of the risk-free 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 Fama-French as the value-weight 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.

ME factor

The size factor (ME) is the small-minus-big monthly difference between the arithmetic average of the returns on 9 small size portfolios and the arithmetic average of the returns on 9 big size portfolios.

IA factor

The investment factor (IA) is the low-minus-high monthly difference, between the arithmetic average of the returns on 6 low I/A portfolios and the arithmetic average of the returns on 6 high I/A portfolios.

ROE factor

The ROE factor is the high- minus-low monthly difference between the arithmetic average of the returns on 6 high ROE portfolios and the arithmetic average of the returns on the 6 low ROE portfolios.

Source

global-q.org, Technical Document: Factors

References

Davis, Fama, and French (2000). Characteristics, Covariances, and Average Returns: 1929-1997. Journal of Finance.

Hou, K. and Xue, C. and Zhang, L. (2015). Digesting Anomalies: An Investment Approach. The Review of Financial Studies.

Hou, K. and Mo, H. and Xue, C. and Zhang, L. (2019). Which factors?. Review of Finance.

See Also

The series was generated with GetFactors().

Examples

data(Q4.monthly)

head(Q4.monthly)

JustinMShea/ExpectedReturns documentation built on Sept. 9, 2023, 9:41 p.m.