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Understanding Risk and Return, the CAPM, and the Fama-French Three-Factor Model

Kent L. Womack
Dartmouth College – Tuck School of Business

Ying Zhang
Affiliation Unknown




Abstract:     
The first-year MBA finance course regularly includes a discussion of the CAPM. This teaching note extends the typical textbook discussion of CAPM in two ways. First, it provides a step-by-step approach explaining empirically how one can calculate beta and alpha using simple regression. Second, it extends the risk-return asset pricing relationship to the richer three-factor Fama-French model. By examining and controlling for the multiple betas of this model, students can come to understand mutual fund investment styles and multi-factor alphas.

Case and Teaching Paper Series

Date posted: December 19, 2003 ; Last revised: December 19, 2003

Suggested Citation

Womack, Kent L. and Zhang, Ying NMI1, Understanding Risk and Return, the CAPM, and the Fama-French Three-Factor Model. Tuck Case No. 03-111. Available at SSRN: http://ssrn.com/abstract=481881


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Contact Information

Kent L. Womack (Contact Author)
Dartmouth College – Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-2806 (Phone)
603-646-1698 (Fax)
HOME PAGE: http://mba.tuck.dartmouth.edu/pages/faculty/kent.womack
Ying NMI1 Zhang
Affiliation Unknown ( email )
No Address Available
Feedback to SSRN (Beta)


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Citations: 3
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