Fama/French Forum

Financial Times Interview

2012-05-15T14:20:27Z

EFF: Last week I was interviewed by James Mackintosh from the Financial Times. We discussed the relevance of market efficiency for investors, the definition of market "bubbles," and measurements of active manager outcomes. Watch the seven-minute interview here: Defending efficient markets (Financial Times).

Volatility and Premiums

2012-05-07T21:16:34Z

By Eugene F. Fama and Kenneth R. French

Understanding volatility is crucial for informed investment decisions. Our paper explores the volatility of the market, size, and value premiums of the Fama-French three-factor model for US equity returns.

Volatility and Premiums in US Equity Returns (PDF)

Fama on EconTalk Podcast

2012-02-13T15:00:33Z

EFF: I spoke with EconTalk host Russ Roberts about how the efficient market hypothesis relates to macroeconomic events of the past few years, with some additional thoughts on behavioral finance and the evolving nature of financial academic research.

Q&A: Are Stock Returns Normally Distributed?

2012-01-30T14:27:04Z

What is the best way to describe the distribution of stock returns—a normal distribution, lognormal, or something else? What should investors do with this information?

(Read the full entry)

Q&A: Small Stocks for the Long Run

2012-01-23T14:44:33Z

In addressing a previous question ("Has the Equity Premium Puzzle Gone Away?"), you suggested that it requires 35 years or more to be reasonably confident of achieving a positive equity premium. Is the time frame similar for the size and value premiums?

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Q&A: Do Low-Volatility Strategies Produce High Returns?

2012-01-17T14:36:24Z

Baker, Bradley and Wurgler (FAJ 2011) find that low-volatility stocks in the US outperform high-volatility stocks and attribute this apparent anomaly to investor behavioral biases as well as limits to arbitrage. What do you make of their argument?

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Q&A: Seeking the Inefficient Asset Class

2012-01-09T14:43:05Z

We often hear the claim that some markets are less efficient than others—small company stocks, emerging markets, foreign exchange, and so on. Is there any evidence to support this assertion?

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Efficient Markets, Economic Growth, and Market Volatility

2011-11-14T15:13:19Z

Professor Eugene Fama discusses the connections between the financial crisis of 2008 and efficient markets, economic growth, and market volatility with students from the Chicago Booth Finance Club on October 15 at the Gleacher Center.

Q&A: Why Use Book Value to Sort Stocks?

2011-06-27T13:34:25Z

Data from Ken French's website shows that sorting stocks on E/P or CF/P data produces a bigger spread than BtM over the last 55 years. Wouldn't it make sense to use these other factors in addition to BtM to distinguish value from growth stocks?

(Read the full entry)

Q&A: Cap Weighting or GDP Weighting?

2011-06-20T13:58:41Z

What is the merit, if any, in using a country weighting scheme based on Gross Domestic Product (GDP) rather than market capitalization?

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Q&A: Expected Returns and Socially Responsible Investing

2011-06-13T13:47:23Z

Are expected returns for "socially responsible" strategies lower compared to a conventional approach?

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Q&A: Front Running and Fair Pricing

2011-06-06T20:52:42Z

What is the relation, if any, between the practice of "front running" trades and the efficient market hypothesis?

(Read the full entry)

Home Bias

2011-05-31T13:38:20Z

Investors tend to overweight their equity portfolios with stocks from their home country market. Ken French says that, while home bias is still the norm, investors have significantly increased their allocation to foreign markets over the last 30 years. He explains that investors might overweight their home market for economic reasons, perhaps to hedge consumption risk or to offset tax disadvantages they suffer in some foreign markets. Home bias can also be driven by behavioral factors. For example, investors may overweight their home country because of their uncertainty (the unknown unknowns) about foreign markets, or because they are overconfident about picking stocks in their home market. Ken says the best approach is to start with a global market portfolio, then make adjustments based on personal preference.

(View the video)

Q&A: Liquidity and Stock Returns

2011-05-23T13:15:44Z

Is there a liquidity risk factor in stock returns that helps explain differences in average returns?

(Read the full entry)

Homemade Dividends

2011-05-16T14:43:39Z

Should retirees limit their spending to the interest and dividends they receive? Ken French says investors should be indifferent to how they raise cash, whether through dividends and interest, or through the sale of shares--a method Merton Miller called "homemade dividends." Despite the economic logic, some investors focus on dividends and interest. While this approach may encourage disciplined spending, Ken explains that it also can distort one's investment approach--for example, when investors choose dividend-paying stocks over broad diversification, or chase higher yields by holding riskier bonds. In an effort to get more, they actually lose.

(View the video)