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Carhart Model

March 14, 2016

Carhart noticed 3 Groups of stocks tend to have higher returns

  • Small Cap Stocks symbolized SMB (Small Minus Big)
  • Value Stocks symbolized HML (High Minus Low)
  • Momentum Stocks symbolized WML (Winners Minus Losers)

This model is based on CAPM and Fama-French Models

E(Rp) = Rf + ßp1(RMRF) + ßp2(SMB) + ßp3(HML) + ßp4(WML)

RMRF = return of weighted index in excess of T-Bills

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