# Fama-French Three-Factor Model

*Risk & Portfolio — Finicade finance glossary*

The Fama-French model explains returns with three factors — the market, company size, and value versus growth — after CAPM single factor failed tests.

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.

**Also known as:** Fama French, three factor model, five factor model

**Related terms:** [CAPM (Capital Asset Pricing Model)](https://finicade.com/glossary/capm), [Efficient-Market vs Factors](https://finicade.com/glossary/multi-factor-models), [Value Stock](https://finicade.com/glossary/value-stock), [Small-Cap Stock](https://finicade.com/glossary/small-cap-stock), [Momentum Factor](https://finicade.com/glossary/momentum-factor)

Source: https://finicade.com/glossary/fama-french-three-factor-model