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Fama and French Three Factor Model Definition: Formula and Interpretation

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The Fama and French Three-Factor model expanded the CAPM to include size risk and value risk to explain differences in diversified portfolio returns.

Table of Contents Expand Table of Contents What Is the Fama and French Three Factor Model? How It Works Fama and French's Five Factor Model FAQs What Is the Fama and French Three Factor Model? The Fama and French Three-Factor Model, introduced in 1992 by Nobel Laureate Eugene Fama and researcher Kenneth French, enhances the traditional capital asset pricing model (CAPM) by incorporating size and value risk factors alongside market risk. This model acknowledges that small-cap and value stocks consistently outperform the broader market. By integrating these additional factors, the Three-Factor M

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