Step 8: Riskese
The Value Risk Factor The third risk factor in the Fama/French model is the “value risk factor,” which refers to the amount of a portfolio’s exposure to value or low-priced stocks relative to their book value. Value is measured by the book-to-market (BtM) ratio. The book value of a company is an accounting term for its net worth, its assets minus its liabilities. The market value of a company is its price per share times the number of shares outstanding. Stocks with higher BtM ratios are considered value stocks while stocks with lower BtM ratios are considered growth stocks. Figure 8-9 plots the risk and return characteristics and the growth of $1 for the value risk factor for the five quintiles of the U.S. stock market from 1928 through 2013. Figure 8-9
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...