Quickie -> Multi Factor Model

Q. What is not a part of Fama and French three-factor model A. Size effect B. Value effect C. Growth effect D. Momentum effect … no cheating!

B? Not sure my memory is a little fuzzy on this one.

Ok I will give you all a hint - the answer ends with ‘effect’ and don’t tell me this was a worthless hint and didn’t serve anybody. Dwight - you could be correct (see my hint above).




is this seriously in the readings? looking at those and having not a clue, i’d say D fall under “one of these things is less like the other ones”… maybe one of B or C since they’re kind of opposites of eachother? this is just test taking out loud strategies when you have no clue who fama and french are. i demand the LOS this comes from- MOLE! MOLE!

i know it’s not a or b - put me down for C.

Wikipedia’d it since I can’t find the answer in CFA materials (although it rings a bell from somewhere). The answer is D. r - Rf = beta3 x ( Km - Rf ) + bs x SMB + bv x HML + alpha The effects Fama and French added to the the CAPM model were one for small cap stocks and one for growth/value stocks. Together, these 2 + the beta explain 90% of a stock’s return. Thus their conclusion was that active management can very rarely beat a benchmark return (alpha is small). Am I on the right track Dinesh?

P.S. sorry for cheating, your “hint” made me too curious to wait =P

ilvino is right on the money! Ans is C: There is no QID to this question, since I made this up. I have the Schweser page number with me:Book-4-page-68/69

Hats off for a question from the professor’s note haha. I KNEW I remembered those names from somewhere.

lol … Dwight. I can understand, I did a cruel thing by typing-in a question from Professors notes, but yea! - Are we all not getting ready for the Saturday night’s party, right?

Okay, so the three factors in this model are RMRF (excess returns), SMB (small minus big) and HML (high minus low). Which one relates to momentum? RMRF?

SMB (small minus big) = looks like a SIZE effect HML (high minus low) =loos like a VALUE effect RMRF (excess returns) = looks like MOMENTUM effect = ‘This effect suggests that the past short-term performance of firm predicts the future short-term performance’

oh this q seriously made my night!