Influence of EV/EBIT on the Fama French Three Factors Model

Abstract

The Fama French Three Factors model is one of the most common financial models used to predict portfolio returns. In my research, I add one more element, EV/EBIT, to test whether the value of EV/EBIT might influence the accuracy of the Fama French three factors Model. As a result, EV/EBIT doesn’t explain by the Fama French Three Factors Model. Companies with low EV/EBIT tend to get lower alpha than companies with high EV/EBIT, implying that EV/EBIT affects the accuracy of the Fama French Three Factors Model.