Farma French Multiple Choice Flashcards
Which of the following statement is made by the authors with regards to
this specific article. Choose the right answer from the list below:
(a) The three-factor model cannot explain the cross-section of expected returns
of stocks sorted by Quality.
(b) Long-term past losers have higher future returns and lower beta on SMB
and HML
(c) Long-term past losers have higher future returns and higher beta on SMB
and HML
(d) The Momentum and Value premia are inversely correlated, so that it is
always better in create a diversiÖed portfolio investing in both
(e) None of the above
C
Mock Exam Which of the following statements is correct?
a. At the end of each January, stocks are assigned to two Size groups
using the NYSE median market cap as breakpoint.
b. HMLB is the average return on the portfolio(s) of bouncy and
high B/M stocks minus the average return on the portfolio(s) of bouncy
and low B/M stocks. HMLS is the same but for portfolios of smooth
stocks, HML is the average of HMLS and HMLB, and HMLS-B is the
di§erence between them.
c. In the Örst two blocks of Panel A, the B/M factor, HML, uses
the VW portfolios formed from the intersection of the Size and B/M
sorts (2x2 = 4 or 2x3 = 6 portfolios), and the proÖtability and investment factors, RMW and CMA, use four or six VW portfolios from the
intersection of the Size and OP or Inv sorts.
d. In the third block, HML, RMW, and CMA use the intersections
of the Size, B/M, OP, and Inv sorts (3x3x3x3 = 81 portfolios).
e. None of the above
C
In their 1996 paper, Fama and French claim that the main embarassment
of the three-factor model is its failure to capture XXX as documented by ZZZ.î
Please
(a) XXX = The continuation of long-term returns; ZZZ = Jegadeesh and
Asness (2004).
(b) XXX = The negative correlation between the value and momentum premia;
ZZZ = Asness (1994).
(c) XXX = The reversal of long-term returns; ZZZ = Kahnemann and Tversky
(1992).
(d) XXX = The continuation of short-term returns; ZZZ = Jegadeesh and
Titman (1993) and Asness (1994).
(e) XXX = The behavioral-Önance disposition e§ect; ZZZ = Frazzini (1994).
d
Fama and French (1988) present the following results. How do they
interpret these results?
a. The three factor Fama-French model can explain equity returns much
better than the CAPM
b. There exist both temporary and persistent components in equity returns
c. The Long Run reversal is not an anaomaly and can be explained by the
Value e§ect
d. The Value premium is large and statistically signiÖcant.
e. There exists a tent-shape factor structure in equity returns.
b
