A three-factor asset pricing model that extends the Capital Asset Pricing Model by adding size and value factors to market risk. It explains stock returns based on market risk, company size, and book-to-market value ratios.
Named after economists Eugene Fama and Kenneth French who developed it in the 1990s, building on earlier work in efficient market theory. The model evolved from observations that small-cap and value stocks historically outperformed predictions of the single-factor CAPM.
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