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What do Fama-French factors add to C-CAPM?

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Publication details

JournalJournal of empirical finance
DatePublished - Jun 2013
Volume22
Number of pages15
Pages (from-to)113-127
Original languageEnglish

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. C-CAPM 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.

Bibliographical note

Accepted 5/4/2013

    Research areas

  • ASSET PRICING-MODELS, CONSUMPTION, book to market value

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