The Three-Factor Model:

Calculate the expected return on a stock of your choice using the Fama/French three-factor model by following the directions below.

Go to Kenneth R. Frenchs Web site mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html and locate the data for the daily Fama/French

factors. After you download the file, copy the data for the most recent two years into an Excel spreadsheet (You may have to use the Data, Text to Columns menu to get the data into a usable format). Download closing price data for a stock of your choice, with dates that correspond to the Fama/French data, from finance.yahoo.com Calculate the stocks daily returns.

Estimate the three-factor model for your stock. To do this, line up the data in the order specified by the model, then use Excels Tools, Data Analysis,

Regression menu. (Use rS rf as the Y variable, rM rf as the first X variable, rHML as the second X variable, and rSMB as the third X variable.)

Use the resulting regression coefficients to estimate the expected return on your stock based on the most currently available Fama/French factors from the

French Web site.