Three-factor Fama-French Model for the Russian Stock Market

This paper is devoted to an illustration of the construction of the Fama-French three-factor model. A change of criterion for classifying size of companies was made in order to achieve the results reached by Kenneth French and Eugene Fama (Fama et al., 1993). The model was tested using standard portfolios for the entire data, standard portfolios for data with the exception of financial companies, industry portfolios, 25 portfolios constructed according to company’s market value. Tests results showed ineffectiveness of standard portfolio calculation approach for Russian stock market. However, an alternative criterion of company’s size allowed to achieve better results according to the Eugene Fama and Kenneth French results (Fama et al., 1993). This study extends previous studies of the three-factor model on the Russian stock market.