Grant Telenko

Finance 321

Professor Juneja

5 May 2023

Term Project: John Deere

For this project, I decided to use the company Kohn Deere, simply because they have

been around so long and are very good at innovating their technology to give people the best

possible product. I also personally invest in this company because I believe in the agricultural

importance and longevity of this company. John Deere has allowed our nation and world to grow

to agricultural levels that would not be possible without them. Throughout this project, I will be

analyzing my firm’s returns and forecasted stock returns. I will use a set of numerous variables

and linear regressions to accomplish this goal. After this is concluded, I will have a good

understanding of how John Deere has performed historically in the market.

1.

To start this project, it was rather a simpler task, but a very important one. I had to go to

this website and collect all the data for my company to complete my analysis. The website was

called the “Wharton Data Research Services (WRDS) database and has access to all the variables

needed.

My first step to collect this data was to go to the link and log into my account using the

information given by my professor. Once logged in, I clicked on “Get Data” then “Data

Dashboard” then “Third Party”. I have now reached step 1, I then clicked on “Fama French
Portfolios and Factors” and then “Factors-Monthly Frequency”. Now I am ready to set the range

of data that I want to use, so I set my data range to have all data from “1980-01” to “2017-12”.

Now in step 2, I had to pick my factors for a query where I picked all but momentum. All those

factors were the four variables that will be used throughout this project. Those four variables

were: Excess Market Return, high minus low, small minus big, and the risk-free rate. Now in

step 3, I had to select my query output. This was where I clicked “*.xlsx” for the format for the

information and “none” for the compression type. Now I am ready to click “Submit Query”. This

concludes the steps required to collect all the monthly data containing the Fama French Factors.

Now that we have the Fama French Data, it is time to collect our data for my selected

company, John Deere. I will be using the same website and logging in as before, the only

additional information I need is my company’s stock ticker symbol, DE. Once logged in, I

clicked “Get Data”, then “CRSP”, then “Stock/Security File”, then I go to “Monthly Stock File”.

Now that I am at step 1 of collecting the data for my company, I am going to click on the same

data range as the Fam French Data to make sure it aligns properly with the same dates. The data

set range I will select is first “1980-01” to “2017-12”. Step 2 is where I will input my stock ticker

and under “time series information”, I selected PRC (price variable). Now onto step 3, for

“Select Query Output”, I chose (*.xlsx) and “None” under compression type. The final steps

were to click “Submit Query”.

Although all I did was follow the steps to collect this data, it is a very crucial part to make

sure all my data is collected properly that way I have accurate outputs and comparisons. Now

that I have all the Fama French data and my data for John Deere, I had to combine all of it into

one Excel page. Once I put John Deere data on the same file, I had to make a new column for the

returns using John Deere stock prices. I did that by using the simple formula that was (New-
Old/Old). Doing that for every row down to the final row, I now have a return for every year

except the first year.

2A.

Now that I have all my data, it was time to determine the estimated regression line

analysis with John Deere stock returns as the dependent variable and the variables above as the

independent variables. First, to do this, I needed to download the “data analysis tool pack” into

my Excel software. Once having that, you were able to determine the estimated regression line

for these three variables: Excess market return, small minus big, and High minus low. The

process to perform these were all the same except the x-variable will change. The steps to

perform this was to click: Data>Data analysis>regression. After you click regression, you get this

pop-up.

For all three regressions, the Y range is always going to be your stock return. I also made

to include Line fit Plots and Residuals for each. The only thing that changes from each is the X-

range for each one you make. For example, for excess market return, I would input all the data

from the excess market return from my Excel data sheet. Then click “ok” and it now created a
new sheet which I will provide below for each. Once created, I made sure to add a “line fit plot”

to each graph, added the trendline, the Y formula, and the r^2. This can all be done by clicking

the sidebar of each graph and selecting them to display on the chart. The last thing I had to

change was to label each “X Variable” correctly under “intercept” to the according variable I was

creating an estimated regression line for. For Question 2A, there were 3 parts: 2AA (Excess

Market Return), 2AB (Small Minus Big), and 2AC (High Minus Low). Below I will display the

table and data for each variable with its corresponding part to the question. I will also but a brief

definition of each variable.

2AA- Excess market Return

“Excess return is identified by subtracting the return of one investment from the total return

percentage achieved in another investment” (Investopedia 1).

2AB- Small Minus Big

“Small Minus Big (SMB) is a size effect based on the market capitalization of a company. SMB

measures the historic excess of small-cap companies over big-cap companies” (Investopedia 1).

2AC- High Minus Low

“High Minus Low (HML) is a value premium. It represents the spread in returns between

companies with a high book-to-market value ratio (value companies) and companies with a low

book-to-market value ratio” (Investopedia 1).

2B.

After those were performed it was time to do the overall model regression analysis. The

process was similar to what I did before by using the data analysis tool pack and following the

steps: Data>Data Analysis>Regression. Now at the same blank pop-up as before, I again input

the same Y-Range as before, and all John Deere stock returns from 1980-2017. Now for the X-

Range, I input all of the ones above containing Excess market return, High Minus Low, and

Small Minus Big. I did not need a table for this one, so I then clicked “ok”. Once it created the

new sheet, I had to change the name of what was below “intercepts” to its corresponding name in

order: EXMRKT, SMB, HML, RFR (Risk-Free Rate).

2C.

With all of that now complete, it is time to use that data to determine which regression

coefficients are statistically significant. Before doing this, I had to know that for a variable’s

coefficient to be statically significant, the p-value for that variable has to be <0.05. Below I will

show each variable’s strength as well as each p-value, and significance F. Below that will be the

overall model coefficient data. For this table, I got data from the question above, but rearranged

it to only show numbers that are needed and if it is significant or not.

Individual variable Coefficient Data

Overall model Coefficient Data

 After collecting and analyzing all of the data, I would say the overall model is significant

because of the significance F. That is because it is so minuscule and close to equal to 0. For

individual models, the only one that I would say is moderately significant is HML due to how the

difference between the individual data and the overall data.

2D.

According to Investopedia, “Adjusted R-squared can provide a more precise view of that

correlation by also taking into account how many independent variables are added to a

particular model against which the stock index is measured” (Investopedia 1). When it comes to

R-Squared, it is expressed between 0-100% with 100% being a perfect correlation. They also

state that “The figure does not indicate how well a particular group of securities is performing.

It only measures how closely the returns align with those of the measured benchmark. It is also

backward-looking—it is not a predictor of future results” (Investopedia 1). Below I will show

similar tables to those in 2c but will add R-squared and adjusted R-squared instead.

Individual Adjusted R-Squared and Variable R-Squared

Overall Model Adjusted R-Squares and R-squared

In the individual for John Deere, HML and SMB Adjusted R-squared are both very small

and/or negative showing to have very little explanatory power. Something to note on the overall

market-adjusted R-squared is how close it is to the EXMRKT adjusted R-squared. Being so

closely correlated to the overall Adjusted R-Squared, there is proof of explanatory power in the

model’s meaning. This suggests that John Deere’s returns are more influenced by what is

happening in the entire market, rather than its characteristics as a company.

3A.

Now, I had to make another overall model regression, using only the data from 1980

through 2000. I followed the same process as before by clicking: Data>Data

analysis>Regression. I then input the stock returns from those dates into the Y Range

(dependent) and then the EMR, SMB, HML, and RFR into the X Range (Independent). Click ok

and the new sheet with new data will appear.

1980-2000 Regression Analysis for Overall Market

3B.

With the information I got from 3A, I was now able to predict the stock price from 2001-

2017 as well as the root mean square error and model-predicted stock price return over the same

period. The first thing I did was make a new Column in the WRDS Excel sheet labeled “Pred

Ret (Yhat)” which was for my forecasted stock return. I then input this formula into that

column, and the row was for January 2001.

This was the formula: ret on DE=0.0067+1.0344*ERM+0.0726*SMB+0.5949*HML-

1.9527*RFR.

The numbers I input into that formula were all the coefficients for each independent variable

that I got from doing the 1980-2000 overall model regression analysis. Once in there, I input

each variable’s value for that month into the equation to get that month’s value. I then clicked

Ctrl+D to fill the formula down the whole column.

 Nest, I had to find the square error to ultimately find RMSE. To do that, in the same

WRDS sheet, I had to make two new rows right next to “Pred Ret (Yhat)”. Those rows were

labeled “Error (y-yhat)”, and SQ Error. The first row, “Error (y-yhat)” was simply just RTX

return minus “Pred Ret (yhat)” for that month. I then clicked Ctrl+D to fill the formula down

the whole column. I then had to find the SQ error for the next column and that formula was just

that month’s “Error (y-yhat)” squared. I then clicked Ctrl+D to fill the formula down the whole

column.

Lastly, I had to get MSE to ultimately get RMSE. One column over I made two new

columns named MSE and RMSE. In MSE, it was the average of all the SQ Errors from 2001 to

2017. Since it was an average, I did not need to apply this to every row because it would just be

the same number. In the final column was RMSE. To do that, all I had to do was do the square

root of MSE. I also only had to do this to this row because it would be the same number all the

way down.

4.

After reading over many class notes, listening to lectures, extensive research online, and

multiple regression models, I am now able to discuss and interpret the strength of the

relationship between stock price returns for a personal firm. After doing regression analysis on

multiple variables and comparing results, it is evident that determining statistical significance

through P-values is one of the more important tools when it comes to observing. In my data, I

believe excess market return showed the most significant not only individually but also in the

overall market regression model. Given that the others, SMB, HML, and RFR were rather
insignificant, it is safe to say that the best representation of the stock’s performance was excess

market return because of its similarity to both individual and overall regression analysis.

Now I will discuss Adjusted R-Squared and its significance. When you get the overall

adjusted R, that gives you a percentage of variance that you can attribute to the stock returns

using all the independent variables. For example, my adjusted r-squared in my overall

regression model was .25894. Putting that into a percentage means that the four variables used,

(EMR, SMB, HML, RFR) attributed to 25.9% of John Deeres stock returns. With those beings

said, given that the overall significance F value is very small, that indicates that the significance

is not very strong for the individual independent variables. As I stated a few steps prior, I

believe that the adjusted r-squared similarity between EMR individually and in the overall

regression model can be attributed to being much more significant when it comes to the reason

for stock return.

To conclude, through all the research and models I completed analyzing this company

and its past, I believe the biggest factor when it comes to the stock’s performance is the excess

market return. Although HML also had a “significant” p-value, I don’t think it had enough

significance to consider it as a main driver for the stock returns. EMR was the only one to have

a truly significant p-value individually and overall, in my regression models. Lastly, having a

high significance in excess market return is something all investors want and look for. It shows

that they constantly beat benchmarks and are not only outdoing themselves but also showing

strength in outperforming the market.

https://www.investopedia.com/ask/answers/012615/whats-difference-between-rsquared-

and-adjusted-rsquared.asp#toc-r-squared-vs-adjusted-r-squared-an-overview
https://corporatefinanceinstitute.com/resources/valuation/fama-french-three-factor-model/