Investigation of Four factors for Fama and French in S&P 500 Index

Abstract

This research presents the evolvement of the Fama-French models and how it’s valid to use in investment and risk perspective. The test conducted was replacing the Fama-French model with other factors which is important in investment. These are the factors. Liquidity: is important for learning how easily a company can pay off it's short term liabilities and debts, Return on equity: is used to evaluate corporate strength and efficiency. It's a measure of overall profitability, and of how well the company's leadership manages its shareholders' money and Leverage: used to significantly increase the returns that can be provided on an investment. They lever their investments by using various instruments, including options, futures, and margin accounts. The testes included approximately 506 Companies is S&P 500 and included tests like Fixed effect, Random Effect and regression analysis.