Open Journal Systems

Implications of Fama-French Models and Critical Evaluation of Cost of Equity Approach in Explanation of Variations in Expected Stock Returns

Gao Bingjing(Coventry University)


CAPM theory that solves relationship between asset return and asset risk for potential investment project by CML and SML, is illustrated in the first section as an introduction of further analysis of corporate valuation techniques. Fama and French three factor model is perceived as a revision of CAPM, although it stills has severe weaknesses. CAPM theory solves relationship between asset return and asset risk for potential investment project by CML and SML.


CAPM;Fama-French Models;Cost of equity;Portfolio theory;Asset pricing

Full Text:



Abdoh, H. and Varela, O., 2018. Competition and exposure of returns to the C-CAPM, Studies in Economics and Finance, 35(4), pp.525-541.

Ang, A. and Chen, J., 2007. CAPM over the long run: 1926-2001, Journal of Empirical Finance, 14(1), pp.1-40.

Anon, A., 2005. CAPM over the long run: 1926-2001, Cambridge, Mass: National Bureau of Economic Research.

Bai, H., Hou, K., Kung, H., Li, H., Erica, X.N. and Zhang, L. 2019. The CAPM strikes back? An equilibrium model with disasters, Journal of Financial Economics, 131(2), pp.269-298.

Boutabba, I., 2015. An empirical validation of Fama and French Three-Factor Model on some U.S indices, Asian Economic and Financial Review, 5(7), pp.915-925.

Campbell, J.Y., Giglio, S., Polk, C. and Turley, R., 2018. An intertemporal CAPM with stochastic volatility. Journal of Financial Economics, 128(2), pp.207-233.

Clark, E. and Kassimatis, K., 2011. An alternative measure of the "world market portfolio": Determinants, efficiency, and information content, Journal of International Money and Finance, 30(5), pp.724-748.

Cornell, B., 1999. The equity risk premium: the long-run future of the stock market, New York: Wiley.

Garcia, F.G., Filho, E.T. & Moreiras, L.M., 2011. The empirical review test of conditional CAPM using expected returns of Brazilian, Argentinean, Portugal and United States of American portfolio. International Journal of Business Research, 11(1), pp.73.

Jagannathan, R. & McGrattan, E.R., 1995. The CAPM debate. Federal Reserve Bank of Minneapolis quarterly review, 19(4), pp.2-17.

Kim, J.H., 2015. Market sentiment and the Fama-French factor premia. Economics Letters, 136(1), pp.129-132.

Mishra, M. & O’brien, T.J., 2019. Fama-French, CAPM, and implied cost of equity. Journal of Economics and Business, 101(1), pp.73-85.

Roll, R., 2012. A new perspective on the validity of the CAPM still alive and well. Journal of investment management: JOIM, 10(3), pp.9-20.

Sanghera, P., 2010. CAPM in depth: certified associate in project management study guide for the CAPM exam, Boston, MA: Course Technology Cengage Learning.

Trigeorgis, L. and Lambertides, N., 2014. The role of growth options in explaining stock returns, Journal of Financial and Quantitative Analysis, 49(3), pp.749-771.

Xiao, Y., Fall, R. and Min, B.K., 2017. The financial performance of socially responsible investments: insights from the intertemporal CAPM. Journal of Business Ethics, 146(2), pp.353-364.

Yagil, J., 1986. Growth, risk and the yield on common stocks in the context of the dividend-growth model, Journal of Business Finance and Accounting, 13(2), pp.251.



  • There are currently no refbacks.
Copyright © 2020 Bingjing Gao Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
  • :+65-98550280 QQ:2249355960