Python for Finance

Multifactor Models and Performance Measures
Exercises
1. What are the differences between the CAPM and Fama-French 3three-factor
models?
2. What are the meanings of SMB and HML in the Fama-French three-factor
model?
3. What is the meaning of MOM in the Fama-French-Carhart four-factor model?
4. What are the meanings of RMW and CMA in the Fama-French five-factor
model?
5. What is the difference between R2 and adjusted R2 when running
multifactor models?
6. How many OLS functions we could use? Please offer at least two functions
from different Python modules.
7. Which module contains the function called rolling_kurt? How can you use
the function?
8. Based on daily data downloaded from Yahoo! Finance, find the results for
IBM based on the last 5 years by running both the CAPM and Fama-French
three-factor models. Which model is better?
9. What is the momentum factor? How do you run a Fama-French-Carhart
four-factor model? Please use a few tickers as an illustration.
10. What is the definition of the Fama-French 5 factor model? How do you run it
for Citi Group? The ticker of the financial institution is C.
11. For the following stock tickers, IBM, DELL, WMT, ^GSPC, C, A, AA, and
MOFT, run regression based on CAPM, FF3, FFC4, and FF5. Which one is the
best? Discuss your benchmark or criteria to compare.
12. Write a Python program to estimate rolling beta on a yearly basis based on
the Fama-French three-factor model. Use it to show the annual beta for IBM
from 1962 to 2016.
13. Update the following Python datasets. The original datasets can be
downloaded from the author's web page. For example, in order to download
the first dataset, called ffMonthly.pkl, go to http://canisius.edu/~yany/
python/ffMonthly.pkl:
ffMonthly.pkl
ffcMonthly.pkl
ffMonthly5.pkl
Fama-French monthly three factors
Fama-French-Carhart monthly four factors
Fama-French monthly five factors
[ 240 ]