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What do the Fama-French factors add to CCAPM?

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  • Pongrapeeporn Abhakorn
  • Peter N. Smith
  • Michael R.Wickens

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. CCAPM 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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File URL: http://cama.crawford.anu.edu.au/pdf/working-papers/2013/232013.pdf
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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-23.

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Length: 26 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-23

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