An application of the Fama–French three-factor model to lodging REITs: A 20-year analysis

Jackson, Leonard A.

doi:10.1177/1467358418798141

Cited by 9 publications

(6 citation statements)

References 31 publications

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“…𝑅 𝑖𝑡 − 𝑅 𝑓𝑡 = 𝛼 𝑖 + 𝛽 𝑖 (𝑅 𝑚𝑡 − 𝑅 𝑓𝑡 ) + 𝑠 𝑖 𝑆𝑀𝐵 𝑡 + ℎ 𝑖 𝐻𝑀𝐿 𝑡 + 𝑟 𝑖 𝑅𝑀𝑊 𝑡 + 𝑐 𝑖 𝐶𝑀𝐴 𝑡 + 𝜀 𝑖𝑡 (2) In this formula, RMW is the difference between the return of high-profit stock portfolio and low-profit stock portfolio, while CMA is the difference between the return of high reinvestment proportion company's stock portfolio and low reinvestment proportion company's stock portfolio. These two items describe profit level risk and investment level risk respectively.…”

Section: Fama-french Five-factor Model Theorymentioning

confidence: 99%

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Study on the Applicability of the Fama-French Three-factor Model and Five-factor Model to the American Biopharmaceutical Industry during the COVID-19 Period

Wang¹

2022

Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)

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At the end of 2019, a huge black swan, COVID-19, came and erupted in 2020. Both our daily life and investment activities are more or less affected by COVID-19, which is a new opportunity and challenge for the biopharmaceutical industry. In order to analyse the current situation of the American biopharmaceutical industry during the COVID-19 period and promote the development of the financial market, the author studied three biopharmaceutical industry funds, selected the data from January 2020 to September 2021, and introduced the three-factor model and the fivefactor model to carry out multiple regression analysis. The results show that during the sample period, both the threefactor model and the five-factor model have strong applicability to the stocks of the American biopharmaceutical industry, which means that all five factors have a strong ability to explain the changes in stock returns of this industry. In addition, the five-factor model has a higher positive correlation and fitting degree for the three funds.

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Section: Fama-french Five-factor Model Theorymentioning

confidence: 99%

“…In particular, the epidemic is undoubtedly a severe challenge for the biopharmaceutical industry. [2]. Samir et al used the data of the Moroccan Stock Market (MSM) from 2005 to 2009 to test the applicability of Fama-French three-factor model.…”

Section: Introductionmentioning

confidence: 99%

Study on the Applicability of the Fama-French Three-factor Model and Five-factor Model to the American Biopharmaceutical Industry during the COVID-19 Period

Wang¹

2022

Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)

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“…The results demonstrated that risk premiums on equity REITs were significantly related to the three stock-market factors (explaining returns to equity REITs' shareholders), whereas mortgage REITs were related to the three stockmarket factors and the two bond-market factors in relation to returns, although they could not explain returns to mortgage REITs' shareholders under the research period. Jackson (2018) applied the FF3 model to examine the returns of 33 US publicly trade lodging REITs over a 20-year period. The empirical results indicated that most object lodging REITs were significantly correlated with all three factors (market, size and value) and they had a positive influence on the selected US REITs' returns.…”

Section: Number Of Reits Creadedmentioning

confidence: 99%

“…If the size factor (SMB) permanently increases by 1 unit, the equilibrium value of S-REITs' required rate of returns will increase by 7.584 units. The positive value suggests that S-REITs are likely to be exposed to the "size risk", to which small companies tend to be sensitive (Fama and Frence, 1992;Jackson, 2018); in other word, portfolios consisting of small companies could be expected to bring higher returns with a higher risk in the long run potentially increasing the exposure to the risk of small REITs. Finally, the long-run multiplier effect of the value factor (HML) on the expected rate of returns (RÀR f ) is À12.265 units; this negative number suggests that the S-REITs' excess returns are also negatively affected by HML in the analysis period suggesting that the excess of returns in the short term will diminish convergint to the mean in the long term.…”

Section: Empirical Analysismentioning

confidence: 99%

Applying the Fama and French three-factor model to analyze risk/reward in the Spanish REITs: an ARDL approach

Taltavull

2021

JERER

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Purpose This paper aims to analyse the risk and excess returns of the Spanish real estate investment trusts (S-REITs) using various methods, though focusing primarily on the Fama-French three-factor (FF3) model, over the period from 2007Q3 to 2017Q2. Design/methodology/approach The autoregressive distributed lag model is used for the empirical analysis to test long-term stable relationships between variables. Findings The findings indicate that the FF3 model is suitable for the S-REITs market, better explaining the S-REITs’ returns variation than the traditional single-index capital asset pricing model (CAPM) and the Carhart four-factor model. The empirical evidence is reasonably consistent with the FF3 model; the values for the market, size and value are highly statistically significant over the analysis period, with 68.7% variation in S-REITs’ returns explained by the model. In the long run, the market factor has less explanatory power than the size and value factors; the positive long-term multiplier of the size factor indicates that small S-REIT companies have higher returns, along with higher risk, while the negative multiplier of the value indicator suggests that S-REITs portfolios prefer to allocate growth REITs with low book-to-market ratios. The empirical findings from a modified FF3 model, which additionally incorporates Spain’s gross domestic product (GDP) growth rate, two consumer price index (CPI) macro-factors and three dummy variables, indicates that GDP growth rate and CPI also affect S-REITs’ yields, while investment funds with capital calls have a small influence on S-REITs’ returns. Practical implications The regression results of the standard and extended FF3 model can help researchers understand S-REITs’ risk and return through a general stock pattern. Potential investors are given more information to consider the new Spanish investment vehicle before making a decision. Originality/value The paper uses standard techniques but applies them for the first time to the S-REIT market.

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“…The performance of lodging real estate investment trusts is highly tied to elements such as market, book-to-value, and size. [7] Another recent study investigates and demonstrates that Fama-French model is applicable to Islamic trust funds throughout a market crash. [8] Yu's study references Fama-French Model's factors, exploring the significance of investor sentiment in the United States stock market.…”

Section: Introductionmentioning

confidence: 99%

Portfolio Optimization with Fama-French Model

Yang¹

2022

Advances in Economics, Business and Management Research

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This paper explores the method of using Fama-French Three Factor Model and mean variance analysis to optimize portfolios, reaching more accurate predictions, and achieving maximum return and minimum risk. Using historical data of stocks from different industries, three factors from the Fama-French database is applied, and new expected return is calculated. Then mean variance analysis is performed to find the optimum Sharpe ratio weights. From the optimized weights, it can be seen that COST, ROM, and JPM are strong performing stocks. Whereas AAPL and small cap stocks like PERI are considered less favorable by both the CAPM model and Fama-French Model. Reducing weight of these stocks could decrease the portfolio risk, hence lowering variance, reaching higher Sharpe ratio. The results in this paper would be beneficial to public and private investors in different financial markets. As shown in this paper and also other works, the use of Fama-French Model and mean variance analysis could increase profit in most cases.

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An application of the Fama–French three-factor model to lodging REITs: A 20-year analysis

Cited by 9 publications

References 31 publications

Study on the Applicability of the Fama-French Three-factor Model and Five-factor Model to the American Biopharmaceutical Industry during the COVID-19 Period

Study on the Applicability of the Fama-French Three-factor Model and Five-factor Model to the American Biopharmaceutical Industry during the COVID-19 Period

Applying the Fama and French three-factor model to analyze risk/reward in the Spanish REITs: an ARDL approach

Portfolio Optimization with Fama-French Model

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