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Since its introduction in the mid 1960s, the capital asset pricing model and its
empirical counterpart, the market model, have been the starting point for both
theoretical and empirical work that involves equities and similar securities. In 1992,
Fama and French published a now famous paper in which they proposed that “beta
was dead”. The implication of this statement is that models based on the CAPM no
longer work and that therefore other models are required. In their paper they proposed
a new model which is now known as the “Fama and French three factor model”,
henceforth F&F3M. This model and the contention that beta was dead provoked a
lively and important debate in the finance community and lead quickly to the
publication of several important papers.
1. Write a clear summary of Fama and French’s paper. The summary must include
an explanation of why they thought beta was dead and the alternative model
which they proposed.
2. Write a summary of the ensuing debate about the “death of beta”. Some of the key
references are below. You may wish to find others, but it is not necessary to cover
all work in the area. Discuss whether or not beta is dead.
3. Discuss the relationship between the CAPM and arbitrage pricing theory (APT),
which was introduced by Ross in 1976. For example; does the F&F3M fit within
the APT framework or does it represent a different approach.
4. The F&F3M makes use of the concept of constructing portfolios based on
characteristics of past stock returns. Discuss whether or not this is a legitimate
technique in financial economics or whether it is just data mining.
5. To what extent does the F&F3M invalidate the CAPM and does it have
implications for Markowitz’ theory of portfolio selection?
6. Finally, write a short summary of other issues that are both relevant to this topic
and which are important. Your summary should include a justification for their
inclusion.
有人能简单概括地帮我答一下以上问题吗？谢谢！
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