Proceedings of the 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022)

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Portfolio Optimization with Fama-French Model

Authors
Haohua Yang1, *
1Department of Mathematics, University of California, Santa Barbara, Santa Barbara, CA, 93106, USA
*Corresponding author. Email: haohuayang@ucsb.edu
Corresponding Author
Haohua Yang
Available Online 27 December 2022.
DOI
10.2991/978-94-6463-052-7_3How to use a DOI?
Keywords
optimization; Fama French; mean variance analysis; portfolio
Abstract

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.

Copyright
© 2022 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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Volume Title
Proceedings of the 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022)
Series
Advances in Economics, Business and Management Research
Publication Date
27 December 2022
ISBN
10.2991/978-94-6463-052-7_3
ISSN
2352-5428
DOI
10.2991/978-94-6463-052-7_3How to use a DOI?
Copyright
© 2022 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Cite this article

risenwbib
TY  - CONF
AU  - Haohua Yang
PY  - 2022
DA  - 2022/12/27
TI  - Portfolio Optimization with Fama-French Model
BT  - Proceedings of the 2022 International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2022)
PB  - Atlantis Press
SP  - 12
EP  - 18
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-052-7_3
DO  - 10.2991/978-94-6463-052-7_3
ID  - Yang2022
ER  -