Home > Business Databases > Risk Free Rate and Fama French factors

Risk Free Rate and Fama French factors

Throughout 2012 Risk Free Rate for US and US has consistently been one of our top posts.

kenfrenchdataFor a US risk free rate, Ken French’s site provides downloadable files of Fama/French factors that include this.

Fama French factors from Kenneth R. French Data Library (click to expand)

Fama French factors from Kenneth R. French Data Library (click to expand)

On the data library page:

Scroll down to U.S. Research Returns Data (Downloadable Files)

The Fama/French Factor downloadable files are available in default/monthly, weekly or daily format.

The risk free rate in these files is based on the returns for a 1 month (4 week) Treasury Bill, and these are expressed in terms of monthly, weekly or daily returns.

For example, the monthly risk free return values include:

  • 200701  –  0.44
  • 200801  –  0.21

For January 2007 the risk free monthly return is 0.44%, and for January 2008 0.21%

FRED-Tbills-2013-01-17If rather than Ken French’s site you go to the FRED Economic Data (Federal Reserve Bank of St. Louis Economic Data) and download the 4-Week Treasury Bill: Secondary Market Rate (Series id TB4WK) from Board of Governors of the Federal Reserve System H15 Selected Interest Rates, they you will get a file expressing the annualised yield on a T-Bill.

For example, the monthly yield figures for TB4WK include:

  • 2007-01-01 – 4.84
  • 2008-01-01 – 2.68

For January 2007 the annual yield on a 4-week T-Bill was 4.84% and for January 2008 2.68%

Converting annual yield to monthly return

To make an annual yield, downloaded from FRED Economic Data or Datastream or Bloomberg etc.,  comparable with the monthly return from the downloadable Fama/French factors we need to convert. We could use an Excel formula

4.84% annually – POWER( (1 + 4.84/100), 1/12 ) = 1.003947 – monthly return 0.39%

2.68% annually – POWER((1 + 2.68/100), 1/12 ) = 1.002206 – monthly return 0.22%

[Converting to weekly would be POWER( (1+r/100), 1/52 ) where r is the annual yield
– converting to daily POWER( (1+r/100)/1/250 ) assuming 250 trading days per year]

Key Tip

There are two important steps to finding a good proxy for the risk free rate:

  1. Finding a series that is as close to risk free as possible for the analysis you are doing, and where you have data available for the relevant dates.
  2. Comparing the data you retrieve with the data format you want and converting between an annual yield and monthly/weekly/daily return as appropriate

In academic work, we recomend that you what you have chosen for your risk free rate and any data conversion that you have applied.

For further tips on potential sources, see earlier posts Risk Free Rate for US and US and Risk Free Interest Rate.

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  1. Jenna
    19 September 2013 at 7:19 pm

    How would you convert a 20 year risk free rate into a monthly rate?

  2. markgreenwood
    5 March 2014 at 5:38 pm

    The Fama-French and Momentum Portfolios and Factors in the UK are available for bona fide academic research only from the University of Exeter Xfi Centre for Finance and Investment.
    http://business-school.exeter.ac.uk/research/areas/centres/xfi/research/famafrench/

    • Nicolo.M.
      16 April 2014 at 4:33 pm

      Do you know where I can find daily Fama-French factors for UK as Exeter’s webpage only provides monthly and yearly data? Thank you!

  3. markgreenwood
    30 March 2014 at 10:54 pm

    Resources for accessing FRED economic data include Fred Add-In for Microsoft Excel and Embedded FRED

  4. Nicolo.M.
    16 April 2014 at 6:26 pm

    markgreenwood :
    I am afraid not. Exeter’s webpage is the only source of Fama-French factors for the UK that I know about.

    Sir, thank you for your response!

  5. Penny
    21 July 2014 at 11:40 am

    How should I convert the uk tbill tender 3M(UKTBTND) downloaded monthly from datastream to be comparable with the monthly Fama-French factors from Exeter’s webpage?

    • markgreenwood
      21 July 2014 at 3:35 pm

      The Fama-French rf (risk-free) factor for December 2008 is 0.000976 (a monthly return of almost 0.1%)
      The UK T-Bill tender 3M (UKTBTND) from Datastream is 1.18253 (an annual percentage yield of almost 1.2%)
      To convert you can use the Excel fomula:
      =POWER(1+X/100,1/12)-1 (where X is the annual yield figure from Datastream)
      1.18253 (annual percentage yield)
      1 + 1.18253/100 (after 1 year)
      POWER(1 + 1.18253/100, 1/12) (after 1 month – root 12 to convert annual to monthly)
      POWER(1 + 1.18253/100, 1/12) – 1 (monthly return)
      0.000980 (to 6 decimal places)

  6. Penny
    21 July 2014 at 6:01 pm

    Thank you so much for your response!

  7. Petter Lande
    5 May 2015 at 6:56 pm

    Hi, Really hope that somebody can help me out, I have struggled with this for a week now.. I have constructed quarterly portfolios, and want to test them up against Fama-French 3 factor model.. I have downloaded daily observations on Fama-French 3 factor model from French´s homepage. I Have also downloaded 3 month us treasury bills (monthly compounded) from Bloomberg. How can I adjust the RF on the Fama-French model and 3 m t-bills so that they are comparable?
    Reguard frustrated Student

  1. 23 January 2013 at 6:59 pm
  2. 25 October 2013 at 9:38 am

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