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What do the Fama-French factors add to CCAPM?

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Date

2013-02

Authors

Abhakorn, Pongrapeeporn
Smith, Peter N.
Wickens, Michael R.

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Crawford School of Public Policy, The Australian National University

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Open Access

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Abstract

This study extends standard C-CAPM by including two additional factors related to firm size (SMB) and book-to-market value ratio (HML) - the Fama-French factors. CCAPM is least able to price firms with low book-to-market ratios. The explanation of these returns, as well as the returns on the SMB and HML portfolios, is significantly improved by the inclusion of the HML factor. The component of the risk premia explained by consumption varies across size. We suggest that a possible explanation for the role of HML is its association with the investment growth prospects of firms.

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https://hdl.handle.net/1885/733746662

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Centre for Applied Macroeconomic Analysis Working Papers (CAMA)

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Centre for Applied Macroeconomic Analysis Working Papers

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Working/Technical Paper

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Publication

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Open Access

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