The Dominance of the Market Factor in the Fama-French Three-Factor Model
Seidman College of Business
ABSTRACT We examine the relative performance of the factors included in the three-factor model. We find that the market factor dominates the other factors in terms of explaining the return variation of portfolios formed on size and value, and portfolios formed on the basis of beta. We also find inconsistencies in the ability of the SMB and HML factors to explain variation across different types of size-value portfolios, and question whether these factors should be considered systematic risk factors. Further, we report that the HML factor has almost no ability to explain variation of beta-based portfolios.
Academy of Economics and Finance
Pettengill, Glenn; Chang, George; and Sundaram, Sridhar, "The Dominance of the Market Factor in the Fama-French Three-Factor Model" (2014). Faculty Scholarly Dissemination Grants. 804.