The excess return of portfolio through Fama-french Three-factor model

Abstract

This paper attempts to study the excess return of portfolios through Fama-French three-factor model. The sample is securities that were listed on the stock exchange of Thailand (SET50) before January 1, 2012 and have traded for ten years between January 1, 2012 and December 31, 2021. Four portfolios are constructed by following the Fama-French three-factor model (S/H, S/L, B/H and B/L) and one is equally weighted portfolio. This study found that, overall, a portfolio with small market capital and high book to market ratio (S/H) can get a higher return than other portfolio. But for t-test, a portfolio with small market capital and high book to market ratio (S/H) can not get a higher return than another portfolio (the results are not significance). Then that means the result of this study is inconsistent with the Fama-French three-factor model. However, the results of the study were consistent with the weak form efficiency market hypothesis, which means past price movements, volume, and earnings data do not affect a stock’s price and can’t be used to predict its future direction.