This project aims to use Fama French 3 Factors Model to conduct an investment strategy to maximize investment return.

The monthly stock prices and accounting data from companies listed on the London Stock Exchange (LSE) during the period November 2010 to September 2019 were collected from Bloomberg. The original stocks were filtered for only those listed on the London Stock Exchange, because a group of stocks with similar underlying risk factors will make the forecast more accurate.

The trading strategy based on the OLS regression is to buy the small size companies who have a low book to market ratio. It will allow you to beat the market return and generate the highest excess returns.

Choosing the companies listed on the London Stock Exchange, within an initial investment of $100,000, to test the trading strategy. Here I set a risk-free rate at 0.68% annually, which is the 10 year UK treasury bill annually return rate.

By sorting the monthly closing price, book to market ratio and market capitalization of each company from 30/06/2014 to 31/05/2019, I selected 5 companies for each portfolio and allocated the money equally to them.

The test results proved that small size company with low book to market ratio portfolios beats the index portfolio consistently.

Thanks @songzh96 for the help!

If you have any questions please raise an issue or email me at: SapiensSuwan@gmail.com