The Fama-French three factor model includes the following factors:
A) beta, expected return on the market, risk free rate of interest, a size factor, and a value factor.
B) the market risk premium, a volume factor, and a size factor.
C) beta, expected return on the market, risk free rate of interest, a volume factor, and a value factor.
D) the yield on corporate bonds, a size factor, and a market factor.
E) None of these.

Question

Quizplus · Accepted Answer

The Fama-French three factor model includes beta, expected return on the market, risk-free rate of interest, a size factor (small cap vs. large cap), and a value factor (value stocks vs. growth stocks). Choice B includes a volume factor that is not part of the Fama-French model. Choice C includes a volume factor and excludes the size and value factors. Choice D includes the yield on corporate bonds, which is not part of the Fama-French model. Option E is a clearly incorrect choice since the Fama-French three factor model exists.

The Fama-French Three Factor Model Includes the Following Factors