|Contributions||Fama–French three-factor model|
|Information at IDEAS / RePEc|
Kenneth Ronald "Ken" French (born March 10, 1954) is the Roth Family Distinguished Professor of Finance at the Tuck School of Business, Dartmouth College.He has previously been a faculty member at MIT, the Yale School of Management, and the University of Chicago Booth School of Business. He is most famous for his work on asset pricing with Eugene Fama. They wrote a series of papers that cast doubt on the validity of the Capital Asset Pricing Model (CAPM), which posits that a stock's beta alone should explain its average return. These papers describe two factors above and beyond a stock's market beta which can explain differences in stock returns: market capitalization and "value". They also offer evidence that a variety of patterns in average returns, often labeled as "anomalies" in past work, can be explained with their Fama–French three-factor model.
Along with contributing articles to major journals such as the Journal of Finance , the Journal of Financial Economics , the Review of Financial Studies, the American Economic Review , the Journal of Political Economy, and the Journal of Business, French is also a research associate at the National Bureau of Economic Research, an advisory editor at the Journal of Financial Economics , and a former associate editor of the Journal of Finance and the Review of Financial Studies.
Professor French was the vice president of the American Finance Association in 2005 and was the organization's president in 2007. Also in 2007, Professor French was elected to the American Academy of Arts and Sciences (AAAS).
He obtained a B.S. in 1975, from Lehigh University in mechanical engineering. He then earned an M.B.A. in 1978, an M.S. in 1981, and a Ph.D. in finance in 1983, all from the University of Rochester. In 2005, French became a Rochester Distinguished Scholar.
French is a board member of Dimensional Fund Advisorsin Austin, Texas, where he also works as Consultant and Head of Investment Policy.
Myron Samuel Scholes is a Canadian-American financial economist. Scholes is the Frank E. Buck Professor of Finance, Emeritus, at the Stanford Graduate School of Business, Nobel Laureate in Economic Sciences, and co-originator of the Black–Scholes options pricing model. Scholes is currently the chairman of the Board of Economic Advisers of Stamos Capital Partners. Previously he served as the chairman of Platinum Grove Asset Management and on the Dimensional Fund Advisors board of directors, American Century Mutual Fund board of directors and the Cutwater Advisory Board. He was a principal and limited partner at Long-Term Capital Management and a managing director at Salomon Brothers. Other positions Scholes held include the Edward Eagle Brown Professor of Finance at the University of Chicago, senior research fellow at the Hoover Institution, director of the Center for Research in Security Prices, and professor of finance at MIT's Sloan School of Management. Scholes earned his PhD at the University of Chicago.
In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.
The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information.
Eugene Francis "Gene" Fama is an American economist, best known for his empirical work on portfolio theory, asset pricing, and the efficient-market hypothesis.
In finance, the beta is a measure of how an individual asset moves when the overall stock market increases or decreases. Thus, beta is a useful measure of the contribution of an individual asset to the risk of the market portfolio when it is added in small quantity. Thus, beta is referred to as an asset's non-diversifiable risk, its systematic risk, market risk, or hedge ratio. Beta is not a measure of idiosyncratic risk.
A market anomaly in a financial market is predictability that seems to be inconsistent with theories of asset prices. Standard theories include the capital asset pricing model and the Fama-French Three Factor Model, but a lack of agreement among academics about the proper theory leads many to refer to anomalies without a reference to a benchmark theory. Indeed, many academics simply refer to anomalies as "return predictors", avoiding the problem of defining a benchmark theory.
The random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk and thus cannot be predicted.
Market sentiment is the general prevailing attitude of investors as to anticipated price development in a market. This attitude is the accumulation of a variety of fundamental and technical factors, including price history, economic reports, seasonal factors, and national and world events.
The Fama–MacBeth regression is a method used to estimate parameters for asset pricing models such as the capital asset pricing model (CAPM). The method estimates the betas and risk premia for any risk factors that are expected to determine asset prices. The method works with multiple assets across time. The parameters are estimated in two steps:
Fundamentally based indexes, also called fundamentally-weighted indexes are indexes in which stocks are weighted according to factors related to their fundamentals such as earnings, dividends and assets, commonly used when performing corporate valuations, as well as more qualitative factors like research and corporate governance. Indexes that use a composite of several fundamental factors attempt to average out sector biases that may arise from relying on a single fundamental factor. A key belief behind the fundamental index methodology is that underlying corporate accounting/valuation figures are more accurate estimators of a company's intrinsic value, rather than the listed market value of the company, i.e. that one should buy and sell companies in line with their accounting figures rather than according to their current market prices. In this sense fundamental indexing is linked to so-called fundamental analysis.
The Fama–DFA Prize is an annual prize given to authors with the best capital markets and asset pricing research papers published in the Journal of Financial Economics. The award is named after Eugene Fama, who is a co-founding advisory editor of the journal, a financial economist who helped to develop the efficient-market hypothesis and random walk hypothesis in asset pricing, a 2013 Nobel laureate in Economics, a professor of finance at the Booth School of Business at the University of Chicago, and a research director for Dimensional Fund Advisors and the Center for Research in Securities Prices. The prize is also named for the investment advisory firm, Dimensional Fund Advisors.
Richard Roll is an American economist and professor of finance at UCLA, best known for his work on portfolio theory and asset pricing, both theoretical and empirical.
David Hirshleifer is an American economist. He is a professor of finance and currently holds the Merage chair in Business Growth at the University of California at Irvine. As of 2018 he became President-Elect of the American Finance Association. In 2017, he was elected as Vice President of the American Finance Association (AFA) and assigned as Research Associate to National Bureau of Economic Research. He was previously a professor at the University of Michigan, The Ohio State University, and UCLA. His research is mostly related to behavioral finance and informational cascades. In 2007, he was on the Top 100 list of most cited economist by Web of Science's Most-Cited Scientists in Economics & Business.
In asset pricing and portfolio management the Fama–French three-factor model is a model designed by Eugene Fama and Kenneth French to describe stock returns. Fama and French were professors at the University of Chicago Booth School of Business, where Fama still resides. In 2013, Fama shared the Nobel Memorial Prize in Economic Sciences. The three factors are (1) market risk, (2) the outperformance of small versus big companies, and (3) the outperformance of high book/market versus low book/market companies. However, the size and book/market ratio themselves are not in the model. For this reason, there is academic debate about the meaning of the last two factors.
George S. Oldfield is a prominent academic in the field of finance. He has been published extensively, and is cited for his work on the effects of a firm's unvested pension benefits on its share price published in the Journal of Money, Credit and Banking in 1977.
Campbell Russell "Cam" Harvey is a Canadian economist, known for his work on asset allocation with changing risk and risk premiums and the problem of separating luck from skill in investment management. He is currently the J. Paul Sticht Professor of International Business at Duke University's Fuqua School of Business in Durham, North Carolina, as well as a research associate with the National Bureau of Economic Research in Cambridge, Massachusetts. He is also a research associate with the Institute of International Integration Studies at Trinity College Dublin and a visiting researcher at the University of Oxford. He served as the 2016 president of the American Finance Association.
Jeremy Chaim Stein an American macroeconomist. He is the Moise Y. Safra Professor of Economics at Harvard University, the chair of the Department of Economics at Harvard, and an investment industry consultant. Stein was president of the American Finance Association in 2008, and a member of the Board of Governors of the U.S. Federal Reserve from 2012 to 2014.
In investing and finance, the low-volatility anomaly is the observation that low-volatility stocks have higher returns than high-volatility stocks in most markets studied. This is an example of a stock market anomaly since it contradicts the central prediction of many financial theories that taking higher risk must be compensated with higher returns.
In portfolio management, the Carhart four-factor model is an extra factor addition in the Fama–French three-factor model, including a momentum factor for asset pricing of stocks, proposed by Mark Carhart. It is also known in the industry as the Monthly Momentum Factor(MOM). Momentum is the speed or velocity of price changes in a stock, security, or tradable instrument.
Factor investing is an investment approach that involves targeting quantifiable firm characteristics or “factors” that can explain differences in stock returns. Security characteristics that may be included in a factor-based approach include size, value, momentum, asset growth, profitability, leverage, term and carry.