Common Risk Factors in the Retu rns on Stocks and Bonds Eugene F. Fama Kenneth R. French Journal of Financial Economics 1993 Presenter: 周立軒 Brief Saying… • This paper identifies Five common risk factors in the return on stocks and bonds – Two stock market factors‚ two bond market factors ‚ one market factor. – The five factors seems to explain all returns in stoc k market and bond market • Except the Low-Grade Bonds Agenda • • • • • Introduction The Steps of the Experiment Data & Variables Main
Premium Stock Stock market Security
9-207-056 JANUARY 28‚ 2007 MALCOLM BAKER Multifactor Models There are two parts to this exercise. The first is to evaluate the performance of four mutual funds. And‚ the second is to estimate the cost of capital for two firms. Benchmarking Both parts of the exercise are about choosing an appropriate benchmark‚ either for evaluating past investment returns or assessing a new project. Ideally‚ a benchmark should reflect the opportunity cost‚ or the best alternative investment. If an investment manager’s
Premium Market capitalization Rate of return
Fama-French 3 factors model‚ what would the monthly excess returns on these portfolios not just compare to excess returns on the market portfolio‚ but also with monthly returns on the small portfolios minus big portfolios (SMB)‚ and high book-to-market ratios minus low book-to-market ratios (HML).The coefficient of is 0.09(previous is 0.5) means the average monthly return 0.09% above those 3 factors‚ suggesting these portfolios perform well. But the t-stat of is 1.60 suggests that the monthly excess returns
Premium Stock market Risk Risk aversion
portfolios (Bear Market) 38 Figure 1 : Market Factor 30 Figure 2 : Size Factor 31 Figure 3 : Book-to-market Factor 32 Figure 4 : Momentum Factor 33 Picture 1 : Market Return 49 Picture 2 : SMB Return 49 Picture 3 : HML Return 50 Picture 4 : WML Return 50 Acknowledgement Abstract This paper‚ we study the significance of the four-factor asset pricing model (market factor‚ size factor‚ book-to-market factor and momentum factor) in
Premium Stock market
market portfolio return; (ii): the difference between the excess return on a portfolio of small stocks and the excess return on a portfolio of big stocks (SMB‚ small minus big); and (iii) the difference between the excess return on a portfolio of high-book-to-market stocks and the excess return on a portfolio of low-book-to-market stocks (HML‚ high
Premium
Part1 7. Why are the following “effects” considered efficient market anomalies? Are there rational explanations for any of these effects? a. P/E effect. P/E effect can be considered as efficient market anomalies that can’t be explained by CAPM. If two firms have the same expected earnings‚ the riskier stock will sell at a lower price and lower P/E ratio. Thus the low P/E stock will have higher expected returns. P/E acts as a useful additional descriptor of risk‚ and will be associated with
Premium Stock market Fundamental analysis
Our results are robust to specifications that account for potential endogeneity related to a firm’s derivatives use and capital structure decisions. We further find that the reduction in the cost of equity is attributable to both lower market beta and SMB beta‚ suggesting that firms use derivatives to reduce their financial distress risk and that this distress risk has a systematic component that is priced in the market. Finally‚ the observed reductions in the cost of equity tend to be largest for smaller
Premium Risk Risk management Weighted average cost of capital
Liquidity Risk and Expected Stock Returns ˇ Lubos Pa ˇ ´stor University of Chicago‚ National Bureau of Economic Research‚ and Centre for Economic Policy Research Robert F Stambaugh . University of Pennsylvania and National Bureau of Economic Research This study investigates whether marketwide liquidity is a state variable important for asset pricing. We find that expected stock returns are related cross-sectionally to the sensitivities of returns to fluctuations in aggregate liquidity
Premium Stock market Investment
Journal of Financial Economics 33 (1993) 3-56. North-Holland Common risk factors in the returns stocks and bonds* Eugene F. Fama and Kenneth on R. French Unirrrsit.v 01 Chicayo. Chiccup. I .L 60637‚ C;S;L Received July 1992. final version received September 1992 This paper identities five common risk factors in the returns on stocks and bonds. There are three stock-market factors: an overall market factor and factors related to firm size and book-to-market equity. There are two bond-market
Premium Stock Stock market Average
portfolio away from the market‚ making an active portfolio. We exploit ‘a’ but gain unsystematic risk. Four-Factor model: * SMB = difference between small and large cap stocks * HML = difference between high and low book-to-market stocks * MOM = returns difference between stocks with high and low past returns * CAPM Fama-French (FF) model: Doesn’t include MOM. Predicts that firm size affects average returns Arbitrage risk: * Execution (or leg) risk: Only
Premium Call option Investment Option