49 Pages Posted: 1 Oct 2014 Last revised: 26 Jun 2015
Date Written: June 2015
A five-factor model that adds profitability (RMW) and investment (CMA) factors to the three-factor model of Fama and French (1993) suggests a shared story for several average-return anomalies. Specifically, positive exposures to RMW and CMA (returns that behave like those of the stocks of profitable firms that invest conservatively) capture the high average returns associated with low market β, share repurchases, and low stock return volatility. Conversely, negative RMW and CMA slopes (like those of relatively unprofitable firms that invest aggressively) help explain the low average stock returns associated with high β, large share issues, and highly volatile returns.
Suggested Citation: Suggested Citation
Fama, Eugene F. and French, Kenneth R., Dissecting Anomalies with a Five-Factor Model (June 2015). Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2503174 or http://dx.doi.org/10.2139/ssrn.2503174
By Andrew Ang
By Meb Faber