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Calculating Average Monthly Excess Returns for Factor Portfolios

Article Quant Q&A · Author: Myurathan Kajendran
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Summary

The document addresses how to calculate average monthly percent excess returns for portfolios formed while replicating the Fama–French five-factor model. Its suggested workflow is to obtain historical portfolio prices or returns and a Treasury bill rate or index, then compare portfolio performance with the risk-free return over matching holding periods.

It mentions Bloomberg data functions and Yahoo Finance as possible data sources, but gives no detailed formulas, worked example, or replication of the paper’s table. The guidance is tentative: it does not specify return conventions, portfolio rebalancing, or exactly how to convert Treasury yields into monthly returns. Those choices must be made consistently before averaging excess returns.

Key ideas

  • Excess returns compare portfolio returns with a risk-free return over the same period.
  • Historical portfolio prices and Treasury bill data can provide inputs for monthly calculations.
  • The document does not specify portfolio return conventions or a complete calculation procedure.

Tags

Factor investingPortfolio constructionFixed income
Full text
# How to get the average monthly percent excess returns for portfolios formed?


# How to get the average monthly percent excess returns for portfolios formed?












I'm replicating the Fama-French five factor model. I have formed factor portfolios. I'm not sure how to calculate the average monthly percent excess returns for portfolios. In other words, I want to get the Table 1 in their paper.

Thanks in advance

## Answer by Bloomie (score 0, accepted)

https://quant.stackexchange.com/a/27881

If you have a Bloomberg terminal, you have several options including writing a few Excel functions to dump the data you need to produce these calculations (see =BDH() ).

Based on what I can glean from the question, you do not have that option. I'd try Yahoo finance for historical asset price data -- should be able to pull down the TBill rate AND the stock returns of your portfolio. Once you have that historical pricing data, you'll have to compute the returns by comparing the increase in asset price of your portfolio with the increase in the TBill index (or the current annual yield of the TBill adjusted for the holding period or something).

If you have any updates or clarifications to the question that may redirect our answers, feel free to call that out.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.