What do the Fama–French factors add to C-CAPM? |
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| Institution: | 1. Fiscal Policy Office, Ministry of Finance of Thailand, Phayatai Road, 10400, Thailand;2. Department of Economics and Related Studies, University of York, YO10 5DD, UK;3. Cardiff Business School, Cardiff, CF10 3EU, UK;1. The University of Liverpool Management School, United Kingdom;2. Macquarie University Graduate School of Management, Australia;3. Trinity College, University of Cambridge, United Kingdom;4. University of Sydney Business School, Australia;5. TMB Analytics, TMB Bank PCL, Thailand;1. Finance Center Münster, University of Münster, Universitaetsstr. 14–16, Münster 48143, Germany;2. Chair of Banking and Financial Control, University of Bamberg, Bamberg 96045, Germany |
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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. C-CAPM 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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