FAMA AND FRENCH THREE FACTOR MODEL EXPANDED ON CAPM

PREDICT FUTURE RETURN

CAPM RELIES ON A PORTOFOLIO MARKET RISK FACTOR TO EXPLAIN ABOUT 70% OF ITS ACTUAL RETURN

THREE FACTOR MODEL – MARKET RISK – COMPANY SIZE – VALUE FACTOR

SMALL COMPANY – VALUE STOCK

LARGE COMPANY – GROWTH STOCK

USING ONLY THE CAPITAL ASSET PRICING MODEL