Fama/French Forum

Fama: The Best Advice I Ever Got

2012-11-09T20:38:24Z

EFF: I shared with CNNMoney a piece of advice I received from a statistics professor that has guided my research for 50 years.

Does the Fed Control Interest Rates?

2012-08-08T21:22:12Z

EFF: I have a new paper, "Does the Fed Control Interest Rates?". In it, I find that The Federal funds rate, FF, moves strongly toward the Fed's target, TF, but other rates show little day-to-day convergence to TF. When the Fed changes TF, it moves toward existing short rates. This suggests a passive Fed that follows the market, but it is also consistent with an active Fed that controls rates and rates adjust to reflect predictable changes in TF. When TF changes, short rates move toward the new TF. This is consistent with a Fed that controls short rates or a Fed that has no control but is an informed investor whose signals affect rates.

Fama: Do Active Managers Earn Their Fees?

2012-06-18T15:25:21Z

EFF: In an interview with Client Insights host Dan Richards, I explain the key findings of the paper "Luck vs. Skill in Mutual Fund Performance" that Ken French and I published in 2010. Looking at funds over their entire lifetimes, only 3% demonstrate skill after accounting for their fees, and that's what you would expect purely based on chance. Even the active funds that have generated extraordinary returns are unlikely to do better than a low-cost passive fund in the future.

Fama: Why Small and Value Stocks Outperform

2012-06-07T18:08:24Z

EFF: I talked with Client Insights host Dan Richards about the problems with the Capital Asset Pricing Model (CAPM) and the development of the Fama/French three-factor model as a more accurate way of determining how average returns differ from one another. I also explain why higher expected returns for small and value stocks should persist.

Fama: Is Warren Buffett Lucky or Skilled?

2012-05-31T19:59:22Z

EFF: I spoke with Client Insights host Dan Richards about the importance of effectively communicating the risks associated with equity investing. Also, I discuss how Warren Buffett's success is more properly viewed in the context of business ownership than equity investment.

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?

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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?

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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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