Oct 7, 2020
Links

EFF: Promarket, a publication of the Stigler Center at the University of Chicago Booth School of Business, asked a range of experts to reflect on the 50th anniversary of Milton Friedman’s influential New York Times article on the social responsibility of business. I shared my thoughts on market forces, stakeholder capitalism, and ESG. You can read the full article here

 
Sep 24, 2020
Essays

By KENNETH R. FRENCH

Returns for FAANG stocks over the last decade were extraordinary. Professor Ken French explores whether the strong performance tells us much about what to expect next.

(Read the full entry)

 
Jul 30, 2019
Essays

By Eugene F. Fama and Kenneth R. French

We test the hypothesis that inverted yield curves predict negative equity premiums. Using monthly observations for the U.S. and 11 other developed markets, we examine whether shifting from equities to Treasury bills following a recent term structure inversion increases expected returns relative to a passive strategy of simply holding the value weight market. We find no evidence that inverted yield curves predict stocks will underperform bills.

 
Oct 1, 2018
Essays

By Eugene F. Fama and Kenneth R. French

The high volatility of stock returns is common knowledge, but many investors may not fully appreciate the implications of return volatility. Investors cannot draw strong inferences about expected returns from three, five, or even ten years of realized returns. Those who act on such noisy evidence should reconsider their approach.

 
Jan 26, 2018
Essays

By KENNETH R. FRENCH

Bayes rule is a way to update your model of the world when you have new information. Suppose we are interested in assessing the probability that a specific hypothesis is true. We start with an initial assessment, called our prior, which is based on all the data we have observed, books we have read, and our other life experiences. This post explains how we should update our initial assessment when we observe new data.

(Read the full entry)

 
Dec 21, 2016
Videos

In this video, Andrew Lo—Professor of Finance at MIT Sloan—speaks with Eugene Fama about the arc of Gene’s empirical and theoretical research. The topics covered in this interview range from Gene’s PhD dissertation on The Behavior of Stock Market Prices which laid the groundwork for the Efficient Markets Hypothesis, to tests of the Capital Asset Pricing Model that ultimately set the stage for the Fama-French Three Factor Model in 1993. Andrew and Gene also discuss the application of financial research at Dimensional. The interview concludes with a forward-looking discussion on whether a “perfect portfolio” can be constructed, as well as Gene’s reflections on the Fama-French Five Factor Model (2014).

Please do not quote. To accompany the forthcoming book, In Pursuit of the Perfect Portfolio by Steve Foerster (Ivey Business School at Western University) and Andrew W. Lo (MIT).

(View the video)

 
Jul 13, 2016
Videos

The efficient markets hypothesis (EMH), developed by Eugene Fama in the 1960s, simply states that prices reflect all available information. Despite its simplicity, the EMH has been difficult to test and generated decades of debate. In this video, Gene and Richard Thaler, a founding father of behavioral economics, discuss whether markets are efficient. Despite some areas of discord, Thaler sums up an important point of agreement: “Stock markets, good or bad, are the best thing we got going. So, nobody’s devised a way of allocating resources that’s better.”

(View the video)

 
May 10, 2016
Essays

Long/Short (LS) strategies buy one equity portfolio and short another. They are often sold as a way to add a premium with special diversification benefits that arise because the premium is not highly correlated with the rest of an investor’s equity portfolio. We provide examples to show how to evaluate these claims.

 
May 5, 2016
Essays

Portable alpha is the return from an active investment strategy that has no exposure to some index, such as the S&P 500 or the Russell 2000. It is often sold as a way to get the benefits of active management at lower cost. For the moment we leave aside whether there are benefits to active management and focus on the claim about costs.

 
Apr 21, 2015
Q&A

EFF/KRF: Our strategies for choosing papers are similar. Sometimes we don’t have a choice. If we agree to referee a paper or discuss it at a conference, we are certain to read it, and we read most of the papers our colleagues write.

 
ABOUT FAMA AND FRENCH
Eugene F. Fama
The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business
Kenneth R. French
The Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College
This information is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Dimensional Fund Advisors and does not represent a recommendation of any particular security, strategy or investment product. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to Dimensional Fund Advisors LP.