OPEN-SOURCE SCRIPT
Fama-French 3 Factor Model
Updated
Fama-French 3 Factor Model
Extension of the Capital Asset Pricing Model (CAPM)
CAPM
Ra = Rfr + [βa * (Rm - Rfr)]
where,
Ra = Return of the Asset
Rfr = Risk-Free Rate
βa = Beta Coefficient of the Asset
Rm - Rfr = Market Risk Premium
Fama-French 3 Factor
r = rf + β1*(rm - rf) + β2(smh) +β3(hml)
r = Expected rate of return
rf = Risk-free rate
ß = Factor’s coefficient (sensitivity)
(rm – rf) = Market risk premium
SMB (Small Minus Big) = Historic excess returns of small-cap companies over large-cap companies
HML (High Minus Low) = Historic excess returns of value stocks (high book-to-price ratio) over growth stocks (low book-to-price ratio)
Small is set to EEWSC
Invesco S&P SmallCap 600® Equal Weight ETF
Big is set to EQLW
Invesco S&P 100 Equal Weight ETF
High is set to
IUSV
iShares Core S&P US Value ETF
Low is set toIUSG
iShares Core S&P US Growth ETF
returns selections
'returns'
'logarithmic returns' (use for realized (historical) returns)
'geometric returns' (compounded returns)
risk-free rate selections:
DTB3
DGS2
DGS5
DGS10
DGS30
tf = primary time-frame
rtf = reference time-frame
Extension of the Capital Asset Pricing Model (CAPM)
CAPM
Ra = Rfr + [βa * (Rm - Rfr)]
where,
Ra = Return of the Asset
Rfr = Risk-Free Rate
βa = Beta Coefficient of the Asset
Rm - Rfr = Market Risk Premium
Fama-French 3 Factor
r = rf + β1*(rm - rf) + β2(smh) +β3(hml)
r = Expected rate of return
rf = Risk-free rate
ß = Factor’s coefficient (sensitivity)
(rm – rf) = Market risk premium
SMB (Small Minus Big) = Historic excess returns of small-cap companies over large-cap companies
HML (High Minus Low) = Historic excess returns of value stocks (high book-to-price ratio) over growth stocks (low book-to-price ratio)
Small is set to EEWSC
Invesco S&P SmallCap 600® Equal Weight ETF
Big is set to EQLW
Invesco S&P 100 Equal Weight ETF
High is set to
IUSViShares Core S&P US Value ETF
Low is set to
IUSGiShares Core S&P US Growth ETF
returns selections
'returns'
'logarithmic returns' (use for realized (historical) returns)
'geometric returns' (compounded returns)
risk-free rate selections:
DTB3DGS2DGS5DGS10DGS30tf = primary time-frame
rtf = reference time-frame
Release Notes
// log-returns set as defaultRelease Notes
//plotting changehline scale:
ln = natural logarithm
ln (3)
ln (9)
ln (27)
ln (81)
ln (248)
Open-source script
In true TradingView spirit, the author of this script has published it open-source, so traders can understand and verify it. Cheers to the author! You may use it for free, but reuse of this code in publication is governed by House rules. You can favorite it to use it on a chart.
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