FAMA AND FRENCH THREE FACTOR MODEL
A factor model that expands on the capital asset pricing model (CAPM). Both models aim to measure portfolio performance and predict future returns. However, the CAPM uses one factor - the market risk, whereas Fama and French three-factor model adds such factors as company size and value. By including these two factors, the model adjusts for the outperformance tendency, which makes it easier to evaluate manager performance.
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