Understanding Risk and Return, the CAPM, and the Fama-French Three-Factor Model
Kent L. Womack
University of Toronto - Rotman School of Management
affiliation not provided to SSRN
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.
Number of Pages in PDF File: 14Case and Teaching Paper Series
Date posted: December 19, 2003
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