O'Reilly logo

The Essential P/E: Understanding the stock market through the price-earnings ratio by Keith Anderson

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Chapter 7. Accepting Reality: The Fama and French 3-Factor Model

In a landmark series of papers in the early 1990s, Eugene Fama and his usual co-author Ken French changed the rules of the game. David Dreman unkindly described them as ‘boldly thrusting thirty years into the past’ because they seemed to be stealing some of the clothes of value investors. Fama and French (F&F) had already moved away from the simple CAPM position that beta can explain the differences in securities’ returns. Now their papers proposed that company size and price-to-book value effects could explain stock returns. Under what soon became known as the Fama and French three-factor model, the expected returns for a stock in one-month depend on the risk-free rate plus: ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required