When calculating the required return using Fama and French and you are given the rfr in form of a Current short-term government bill yield and Current long-term government bond yield, which rf rate do you use? Is there a rule on this?
I think I read that normally you should apply the one matching your investment horizon (i.e. rather the longer term) but for some reason the short term is used.
I’m not on this topic currently so can’t really check but it must be explained in this way.
Fama & French built their model using the one-month T-bill rate as the risk-free rate.
Thanks that explains why they use the short term rate - would be nice if they actually added that explanation to the curriculum