X-Message-Number: 9916
Date: Sat, 20 Jun 1998 00:49:29 -0700 (PDT)
From: Doug Skrecky <>
Subject: multifactor explanations of asset pricing anomalies 

The Journal of Finance LI(1): 55-84 1996

Eugene F. Fama and kenneth R. French

"Multifactor Explanations of Asset Pricing Anomalies"

Abstract:

    Previous work shows that average return on common stocks are related to
firm characteristics like size, earnings/price, cash flow/price,
book-to-market equity, past sales growth, long-term past return, and
short-term past return. Because these patterns in average returns
apparently are not explained by the CAPM, they are called anomalies. We
find that, except for the continuation of short-term returns, the anomalies
largely disappear in a three-factor model. Our results are consistent with
rational ICAPM or APT asset pricing, but we also consider irrational
pricing and data problems as possible explanations.

Additional quote from text:

    Thus portfolios formed on E/P, C/P, sales growth, and long-term past
returns do not uncover dimensions of risk and expected return beyond those
required to explain the returns on portfolios formed on size and BE/ME.

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