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The Value Premium and the CAPM


Eugene F. Fama


University of Chicago - Booth School of Business (Finance Authors)

Kenneth R. French


Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)
March 2005


Abstract:     
We examine (i) how value premiums vary with firm size, (ii) whether the CAPM explains value premiums, and (iii) whether in general average returns compensate beta in the way predicted by the CAPM. Loughran's (1997) evidence for a weak value premium among large firms is special to 1963-1995, U.S. stocks, and the book-to-market value-growth indicator. Ang and Chen's (2003) evidence that the CAPM can explain U.S. value premiums is special to 1926-1963. The CAPM's general problem is that variation in unrelated to size and value-growth goes unrewarded throughout 1926-2004. This produces rejections of the model for 1926-1963 and 1963-2004.

Number of Pages in PDF File: 30

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Date posted: March 16, 2005  

Suggested Citation

Fama, Eugene F. and French, Kenneth R., The Value Premium and the CAPM (March 2005). Available at SSRN: http://ssrn.com/abstract=686880 or http://dx.doi.org/10.2139/ssrn.686880

Contact Information

Eugene F. Fama (Contact Author)
University of Chicago - Booth School of Business (Finance Authors) ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)
Kenneth R. French
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN (Beta)


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