What Is Fama-French factors?
The Fama-French factors are a set of equity risk factors introduced by Eugene Fama and Kenneth French to explain the cross-section of stock returns beyond the single market factor of the CAPM. The original 1993 three-factor model adds SMB (Small Minus Big, a size premium) and HML (High Minus Low, a value premium based on book-to-market) to the market factor. The 2015 five-factor model further adds RMW (Robust Minus Weak profitability) and CMA (Conservative Minus Aggressive investment).
Each factor is constructed as a long-short portfolio: for example HML is long cheap (high book-to-market) stocks and short expensive ones. Fama and French maintain free monthly data libraries that researchers use as benchmarks and building blocks.
Example: in Green Lark’s Sharpe-optimal long-only blend of ten beta-hedged Fama-French and AQR factors (1963-2026), the optimiser dropped every plain Fama-French factor in favour of the refined AQR versions such as HML-Devil.
Literature and references:
Eugene F. Fama and Kenneth R. French, Common Risk Factors in the Returns on Stocks and Bonds, Journal of Financial Economics, 1993.
Eugene F. Fama and Kenneth R. French, A Five-Factor Asset Pricing Model, Journal of Financial Economics, 2015.
See also