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The Fama French or 3-factor model

June 12, 2012

Fama and French noticed that two classes of stocks regularly outperformed the market, small caps and “value” stocks, ie high book value. So they added two additional factors to CAPM.

  • r = Rf + ℬmkt(Rm – Rf) + ℬs(Rs – Rb) + ℬv(Rh – Rl)
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