The Fama/French 3-Factor research shows a direct relationship between risk and return. Most investors accept that stocks have a higher expected return over time than bonds because they are riskier investments. The same is true of small company versus large company stocks.  Value stocks⎯those with low prices relative to earnings, book value, or dividends per share⎯are often considered to be mispriced by investors and even most professional investment advisors. However, the Fama/French research leads us to believe the outperformance of value stocks to growth stocks is due to risk as well. Investors in the aggregate (the “market”) price value stocks lower than growth stocks because they perceive greater uncertainty⎯greater risk⎯in these stocks and therefore expect a higher return over time. Next ➙Returns_1927-2006.htmlshapeimage_4_link_0
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  1. ‣Our Approach

  2. The 3-Factor Model

  3. Returns 1927-2006

  4. Efficient Diversification

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