Dec 11, 2008
How well has the three-factor model explained the recent behavior of stock returns?


EFF/KRF: For diversified portfolios, quite well. For example, the model's market, size, and value-growth factor automatically pick up changes in the volatility of the three factors. Keep in mind, however, that the model is not designed to predict the return on the market (or on SMB and HML), so it cannot call market turns.

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
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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.