Fama and French (1992) found that
A) firm size had better explanatory power than beta in describing portfolio returns.
B) beta had better explanatory power than firm size in describing portfolio returns.
C) beta had better explanatory power than book-to-market ratios in describing portfolio returns.
D) macroeconomic factors had better explanatory power than beta in describing portfolio returns.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

Fama and French (1992) concluded that firm size and book-to-market ratios had better explanatory power for portfolio returns than the beta, which is a measure of market risk used in the Capital Asset Pricing Model (CAPM). This finding challenged the traditional CAPM view that beta was the sole determinant of a portfolio's returns.

Fama and French (1992) Found That