The Size and Value effect of The Fama and French Three Factor Model. Do the variables remain meaningful or redundant? Evidence from the Swedish Stock market 2007-2016

Abstract: This thesis compared the explanatory power on excess return between the Capital Asset Pricing Model and the Fama and French Three Factor Model on the Swedish Market. Fur- thermore, an evaluation of the independent variables included in the Fama and French Three Factor Model was done. This was tested on a sample of 59 listed companies of the Stock- holm Stock Exchange between 2007 and 2015. A total of 16 value weighted portfolios a year were constructed, which were constructed based on the characteristics of the individual companies. Regressions were performed on each portfolio which showed that the Fama and French Three Factor Model outperform the CAPM in explaining returns. Independently the SMB factor contributes the most in explaining excess return which was supported by the Goodness of fit and performed Students t-test. Hence the HML factor seem to be more redundant.