Hands-On Machine Learning for Algorithmic Trading

Obtaining the risk factors

Fama and French make updated risk factor and research portfolio data available through their website, and you can use the pandas_datareader library to obtain the data. For this application, refer to the fama_macbeth.ipynb notebook for additional detail.

In particular, we will be using the five Fama-French factors that result from sorting stocks first into three size groups and then into two for each of the remaining three firm-specific factors. Hence, the factors involve three sets of value-weighted portfolios formed as 3 x 2 sorts on size and book-to-market, size and operating profitability, and size and investment. The risk factor values computed as the average returns of the portfolios (PF) as outlined in the ...