What is the concept behind the indexes used in the Fama and French Model?
A) Form portfolios with standard deviations that mimic the impact of the variables.
B) Form portfolios with returns that are opposite to the impact of the variables.
C) Form portfolios with returns that mimic the impact of the variables.
D) Form portfolios with standard deviations that are opposite to the impact of the variables.

Question

Quizplus · Accepted Answer

The concept behind the indexes used in the Fama and French model is to form portfolios with returns that mimic the impact of the variables. Specifically, the model uses three factors--market risk, size, and value--to explain differences in stock returns. By forming portfolios that reflect exposure to these factors, the Fama and French model aims to capture more of the variation in stock returns than traditional models that rely only on market risk. Therefore, choice C is the correct answer as it reflects the concept behind the Fama and French indexes.

What Is the Concept Behind the Indexes Used in the Fama