What Do the Fama-French Factors Add to C-CAPM?
26 Pages Posted: 16 May 2013
There are 3 versions of this paper
What Do the Fama-French Factors Add to C-CAPM?
What Do the Fama-French Factors Add to C-CAPM?
What Do the Fama-French Factors Add to C-CAPM?
Date Written: May 2013
Abstract
This study extends standard C-CAPM by including two additional factors related to firm size (SMB) and book-to-market value ratio (HML) – the Fama-French factors. CCAPM is least able to price firms with low book-to-market ratios. The explanation of these returns, as well as the returns on the SMB and HML portfolios, is significantly improved by the inclusion of the HML factor. The component of the risk premia explained by consumption varies across size. We suggest that a possible explanation for the role of HML is its association with the investment growth prospects of firms.
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