Comments on: Fama French Three Factor Model Challenged…

By: Jacob Caldwell

Jacob Caldwell — Thu, 13 Jan 2011 01:11:51 +0000

Where do I find the rest of the articles on DFA? I got to XIII and can’t find the rest…the suspense is killing me!

By: WELCOME GLOBE AND MAIL READERS!

WELCOME GLOBE AND MAIL READERS! — Wed, 26 May 2010 11:17:39 +0000

[...] Fama-French Three Factor Model Challenged [...]

By: Preet

Preet — Thu, 28 Jan 2010 01:34:42 +0000

@Richard – being a contrarian IS more fun isn’t it? :)

By: Richard

Richard — Tue, 26 Jan 2010 15:04:53 +0000

It makes sense that people would have trouble thinking that a company with declining revenues is a good investment, turning it into a good value stock. It’s always more fun to be a contrarian :)

By: Preet

Preet — Tue, 26 Jan 2010 01:45:51 +0000

@Richard – there was an interesting paper which I’ll write about soon which essentially tries to show that the market is actually pretty good at predicting the future prospects of companies but overpays for growth companies and underpays for distressed companies. Stay tuned…

By: Richard

Richard — Mon, 25 Jan 2010 15:28:17 +0000

Don’t the growth companies end up being the ones that are overpriced and the value companies the ones that are overpriced? Another good definition for growth companies would be that people are paying (too much) for expected future earnings based on speculation, but I can’t think of a similar definition for value companies. Do people underpay for stable or declining earnings? That would make sense as a psychological bias.

By: Preet

Preet — Sun, 24 Jan 2010 23:56:08 +0000

@dj – don’t worry about the chart as it is unrelated to the post. Just a pretty picture in the background – sorry for the confusion! :)

By: This and That: Interest rates, Couch potato blog and more… | Canadian Capitalist

Fri, 22 Jan 2010 13:35:50 +0000

[...] Preet pointed out that a new paper is challenging the Fama-French Three Factor Model. [...]

By: dj

dj — Thu, 21 Jan 2010 17:16:53 +0000

For some reason i can’t zoom the chart…is it firefox?

By: Preet

Preet — Sun, 17 Jan 2010 23:26:32 +0000

@Richard – you are correct, this is one of the positions of the original three factor model. However, this relation is being called into question by some other researchers.

It’s also interesting to note that some academics have found data to support the notion that the market does a really good job determining the merits of publicly traded companies – but they tend to overpay for growth companies and underpay for value companies – in other words, they get the overall thesis right, but miss on the magnitude of price discrepancy. Perhaps I will highlight this paper in the next few weeks.

cheers!