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The Value Premium and the CAPM

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  • EUGENE F. FAMA
  • KENNETH R. FRENCH

Abstract

We examine (1) how value premiums vary with firm size, (2) whether the CAPM explains value premiums, and (3) whether, in general, average returns compensate β in the way predicted by the CAPM. Loughran's (1997) evidence for a weak value premium among large firms is special to 1963 to 1995, U.S. stocks, and the book-to-market value-growth indicator. Ang and Chen's (2005) evidence that the CAPM can explain U.S. value premiums is special to 1926 to 1963. The CAPM's more general problem is that variation in β unrelated to size and the value-growth characteristic goes unrewarded throughout 1926 to 2004. Copyright 2006 by The American Finance Association.

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Bibliographic Info

Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 61 (2006)
Issue (Month): 5 (October)
Pages: 2163-2185

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Handle: RePEc:bla:jfinan:v:61:y:2006:i:5:p:2163-2185

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