The Centre for Accounting, Banking and Finance (CABF) parked under the Faculty of Business and Finance (FBF) organised a mini-workshop titled “Fama-Macbeth Regression and Fama-French 3-Factor Model Using R” on 17 January 2019 at UTAR Kampar Campus. The workshop was conducted by Dr Kam Fong Chan from the UQ Business School of the University of Queensland, Australia.
Present at the workshop were FBF Dean Dr Au Yong Hui Nee, FBF Deputy Dean for Student Development and Industrial Training Yew King Tak, FBF Head of Finance Department Kuah Yoke Chin, Chairperson of CABF Dr Krishna Moorthy Manicka Nadar and lecturers from FBF, Faculty of Science and Faculty of Information and Communication Technology.
Participants with Dr Chan (front row, third from left)
During the workshop, Dr Chan demonstrated the capabilities of R via RStudio using the capital asset pricing model (CAPM) and one factor model of Sharpe (1963) and Linter (1964). For analysis, he mentioned that the standard practice is to use the past 60 months’ return observations to estimate beta when observing monthly frequency, and if the focus is on daily frequency, the past 250-260 daily observations are commonly used to estimate the beta. Sources of data can be obtained from Kenneth French's online data library, DataStream and the Chicago Research in Security Prices (CRSP) database.
Dr Chan went through some examples of the value of stocks using R via RStudio where data was run to evaluate the results between the one factor CAPM model and the three-factor Fama-French model. He explained that the Fama-French three-factor model expands on the CAPM model by addressing the anomalies of the size and value effects. Using monthly betas and excess returns of Fama-French 17 industry portfolios, he showed how the security market line, a graphical analysis of CAPM, can be obtained. He also mentioned that for testing the risk factors, the Fama MacBeth's test is commonly used.
Dr Chan also gave an account of his experience teaching Financial Modelling at the university where students learned how to programme using R. Feedback from students was positive. In addition to R, other popular data science soft wares were highlighted such as SQL, Python, Java and Hadoop.
Dr Au Yong presenting a souvenir to Dr Chan
The interesting workshop was followed by a Q&A session and thereafter a souvenir was presented to Dr Chan by Dr Au Yong. The talk ended with a group photography session.
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