Fama and French Three Factor Model

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Fama and French Three Factor Model

Created by Eugene Fama and Kenneth French to describe the expected return of a portfolio. Their model includes the market exposure (known as beta in the Capital Asset Pricing Model) plus two other risk factors: SMB (Small Minus Big) and HML (High Minus Low.) SMB accounts for the tendency for stocks of firms with small market capitalizations generate higher returns, while HML accounts for the tendency that value stocks (of firms with high Book to Market ratios) generating higher returns.

Fama and French Three Factor Model

An expansion of the capital asset pricing model that considers the facts that small cap stocks outperform large cap stocks and that value stocks do the same with respect to growth stocks. The model accounts for these facts when determining the appropriate price for these stocks.
References in periodicals archive ?
They then add these two factors to CAPM to reflect a portfolio's exposure--that is, the Fama-French three factor model, which corresponds to the following 3-factor regression:
2) For other important relevant studies following the Fama-French three factor model, please refer to Heston et al.
So, hypothesized three factor model has been compared with two other different models.
001), it has been confirmed that three factor model is the superior one, (see the results of single factor model in Appendix A, Table No: 4).
s (2011) three factor model is to offer an alternative approach to estimating expected returns?
Descriptive Statistics MKT, HML, and SMB are the market, value, and size factors in the Fama and French (1993, 1996) three factor model.
buying past winners and selling past losers can earn "momentum" returns above those predicted by the Fama and French (1993) three factor model.
The results suggest that the conditional Fama and French three factor model has performed better than the conditional CAPM when news asymmetry was taken into account compared with the unconditional Fama and French three factor model and the unconditional dual-beta CAPM in explaining the relationship in beta and returns in case of Pakistani market.
s (1982) work provided the basis for MCC through the use of a three factor model (i.
They are captured by the three factor model of Fama and French (1996) and largely disappear except for the contribution of short run returns.
As argued in literature and described earlier, many of the CAPM average return anomalies are related and are captured by the three factor model of Fama and French (1996).
The developed three factor models of relations between patients and managers of medical units in the e-healthcare market has many advantages in all applications.