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Step 8: Riskese

term persistence, but are not consistent in short periods of time. More than 86 years of risk and return data confirm their results. Fama and French later expanded their model to include fixed income, identifying term and default as two additional risk factors that explain returns for fixed income. Thus, a FiveFactor Model was created, as shown in Figure 8-6. The relationship that exists between these five risk factors and a portfolio’s expected return serves as a framework for designing investment portfolios. The five risk factors are portrayed on the following pages. Figure 8-6

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