Eugene Fama: Factor

Eugene Fama is American economist and Nobel laureate in Economics. Explore interesting quotes on factor.

Eugene Fama: 12 quotes0 likes

“Although size and book to market equity seem like ad hoc variables for explaining average stock returns, we have reason to expect that they proxy for common risk factors in returns.”

Source: Common risk factors in the returns on stocks and bonds, 1993, p. 7

“If assets are priced rationally, variables that are related to average returns, such as size and book-to-market equity, must proxy for sensitivity to common (shared and thus undiversifiable) risk factors in returns. The time-series regressions give direct evidence on this issue. In particular, the slopes and R2 values show whether mimicking portfolios for risk factors related to size and [book-to-market] capture shared variation in stock and bond returns not explained by other factors.”

Source: Common risk factors in the returns on stocks and bonds, 1993, p. 4-5

“The empirical successes of [the three-factor model] suggest that it is an equilibrium pricing model, a three-factor version of Merton’s (1973) intertemporal CAPM (ICAPM) or Ross’s (1976) arbitrage pricing theory (APT). In this view, SMB and HML mimic combinations of two underlying risk factors or state variables of special hedging concern to investors.”

Source: Common risk factors in the returns on stocks and bonds, 1993, p. 57