Question

Which of the following factors were used by Fama and French in their multi-factor model? a)Return on the market index b)Return spread between small and big stocks c)Return spread between high book-to-market stocks and low book-to-market stocks. d)All of the above factors were included in their model.

Answer 1

Fama and French used the return on the market index, return spread between small and big stocks, and return spread between high and low book-to-market stocks in their multi-factor model.

Step-by-step explanation:

The factors used by Fama and French in their multi-factor model are:

1. Return on the market index: This factor measures the overall return of the stock market as a whole.
2. Return spread between small and big stocks: This factor compares the returns of smaller stocks to larger stocks, providing insight into the performance of different segments of the market.
3. Return spread between high book-to-market stocks and low book-to-market stocks: This factor analyzes the returns of stocks with high book-to-market ratios compared to those with low ratios, allowing for the examination of value and growth investing strategies.

Therefore, the correct answer is d) All of the above factors were included in their model.