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Risk & Portfolio

Fama-French Three-Factor Model

Also called: Fama French, three factor model, five factor model

The Fama-French model explains returns with three factors — the market, company size, and value versus growth — after CAPM's single factor failed empirical tests. It reframed decades of apparent stock-picking skill as factor exposure that could be bought cheaply. The later five-factor version adds profitability and investment, and momentum is usually bolted on separately as the Carhart fourth factor.

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