A Five-Factor Asset Pricing Model

Fama, Eugene F.; French, Kenneth R.

doi:10.2139/ssrn.2287202

A Five-Factor Asset Pricing Model

Fama-Miller Working Paper

52 Pages Posted: 30 Jun 2013 Last revised: 23 Sep 2014

See all articles by Eugene F. Fama

Kenneth R. French

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

Date Written: September 2014

Abstract

A five-factor model directed at capturing the size, value, profitability, and investment patterns in average stock returns performs better than the three-factor model of Fama and French (FF 1993). The five-factor model’s main problem is its failure to capture the low average returns on small stocks whose returns behave like those of firms that invest a lot despite low profitability. The model’s performance is not sensitive to the way its factors are defined. With the addition of profitability and investment factors, the value factor of the FF three-factor model becomes redundant for describing average returns in the sample we examine.

JEL Classification: G12

Suggested Citation: Suggested Citation

Fama, Eugene F. and French, Kenneth R., A Five-Factor Asset Pricing Model (September 2014). Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2287202 or http://dx.doi.org/10.2139/ssrn.2287202