Which of the following is NOT a risk premium incorporated in the Fama and French (1992)three-factor model of expected returns?

A) consumption premium
B) market premium
C) size premium
D) growth vs. value premium

Question

Which of the following is NOT a risk premium incorporated in the Fama and French (1992)three-factor model of expected returns?

A) consumption premium
B) market premium
C) size premium
D) growth vs. value premium

Quizplus · Accepted Answer

Fama and French (1993,1996)take a different approach to that followed by Chen,Roll and Ross (1986).They use variables 'that have no special standing in asset-pricing theory [but that] show reliable power to explain the cross-section of average returns'.That is,they rely upon prior research,which has shown there are some variables that for whatever reason appear relevant.The variables chosen in the analysis include size and book-to-market value for equities and term premium and default premium for bonds.

Which of the Following Is NOT a Risk Premium Incorporated