Consider the Dimensions of Higher Returns

Gene Fama

 “equilibrium expected returns can vary through time in a predictable way, which means price changes need not be entirely random.”

–Gene Fama, often sited as the “father of modern finance.”

In 1992, when Gene Fama and Ken French’s paper, “The Cross-Section of Expected Stock Returns” was published in the Journal of Finance [Vol 47, no. 2 (June 1992):427-465], Gene didn’t expect it to become the most cited paper in finance over the last 20 years.

Several of the more cited points in the paper include the dimensions of higher returns.

Dimensions of Higher Returns:

  • Stocks have higher expected returns than fixed income.
  • The stocks of smaller companies have higher expected returns than the stocks of larger companies.
  • Lower-priced value stocks have higher expected returns than higher-priced growth stocks.

Size and Value Dimensions Are Strong around the World

size value graph

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