Economics Risk And Return Questions
The Fama-French three-factor model is an asset pricing model that expands on the Capital Asset Pricing Model (CAPM) by incorporating additional factors that influence stock returns. It was developed by Eugene Fama and Kenneth French in the 1990s. The three factors in the model are market risk (captured by the market return), size risk (captured by the difference in returns between small and large companies), and value risk (captured by the difference in returns between high and low book-to-market ratio companies). The Fama-French three-factor model suggests that these factors, in addition to market risk, play a significant role in explaining the variation in stock returns.