Fama-French Model / Baseline sensitivities for Beta

CFA Level II Equities
#1

The Fama-French model estimates required return as (beta market)(equity risk premium) + (beta size)(small cap return premium) + (beta value)(value return premium).

My study guide provider states that the baseline beta for equity risk premium = 1 and that the baseline betas for small cap and value premiums is 0.

Given beta drift, what does having a baseline beta of 0 imply? That over the long-run the required return is primarily determined by the equity risk premium and not size or value?

#2

Pretty much.

#3

Seriously? I thought studies have shown that over long stretches of time there is are small cap and value premium… hence, the reason, for example that small caps have outperformed large caps.

#4

I’m not saying that that’s the median or mean value for those betas; I’m merely saying that if your baseline is 1, 0, 0, you’re assuming all market beta and no size or value beta.