Course Name: Quantitative Portfolio Management, Section No: 11, Unit No: 1, Unit type: Document
Can FAMA French Fice factor be substituted for CAPM for determining Expected return of a stock?
Hi Raul,
CAPM uses Beta to determine the expected return of a stock: Higher the beta, higher the return.
On the other hand, FAMA French uses five factors, namely, size, value, quality, profitability and investment pattern. Since it takes a few additional factors into consideration it usually is considered to be a better model. However, the final pick between the two depends entirely on the trader and their preferences.
Thanks,
Rushda Ansari