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Abstract
This study examined the different volatility in portfolios represented by the Beta value of agricultural food companies in North America and the comparison of the Capital Asset Pricing Model and Fama French Three-Factor model in explaining the excess returns. Using monthly data from 2007-2020, the research focused on describing the impact of market excess returns, size effect, and value effect on the excess returns of the portfolios. These data were extracted from Simplified Financial Statement and Security Monthly categories of CRSP/Compustat merged vendor in the Wharton Research Data Service database. Six portfolios were formed based on size and value of the company. Results showed one of the small stock portfolios has higher average returns than all big stock portfolios signifying the size effect. High value companies have greater returns than low value companies on average which emphasizes the value effect. The study concluded the different levels of volatility in the portfolios of agricultural food companies’ stocks and the preference of Fama French Three-Factor model in explanatory power with a greater magnitude of R2 and number of insignificant intercepts than the Capital Asset Pricing Model. These results would help the investors to evaluate the potential of agricultural food companies’ stocks as a profitable venture rather than diversification.INDEX WORDS: Volatility, Agricultural Food Companies, Capital Asset Pricing model, Size and value effect, Fama French Three-Factor model