Sharpe to Fama & French: Beta’s Death Announcement is “Highly Premature”
| Dec 27th, 2006 | Filed under: CAPM / Alpha Theory | By: Alpha Male |
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Fama/French groupies beware, in his new book “Investors & Markets“, William Sharpe has a warning for you: the expected out performance of value & small-cap stocks may be a pipe dream. On page 200 of his book, Sharpe concludes that “the announcement of the death of beta appears to be highly premature.”
Explains Sharpe:
“In recent years, some researchers have concluded that the expected returns on some factors may not depend wholly on their beta values. Prominently, Fama and French (1992) have studied the performance of portfolios of securities grouped on the basis of market capitalization and price-to-book ratios…Fama and French find that relative to their beta values, small stocks seem to have performed better than large stocks and that (value) stocks seemed to have performed better than (growth) stocks.” (page 196)
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