- CFA Exams
- CFA Level I Exam
- Topic 4. Corporate Issuers
- Learning Module 18. Cost of Capital: Advanced Topics
- Subject 4. Required Return on Equity
CFA Practice Question
In the Fama-French model, the SMB factor represents the mean return from:
B. shorting the small-cap shares and investing the proceeds in large-cap shares.
C. investing 50% in small-cap shares and another 50% in small-cap shares.
A. shorting the large-cap shares and investing the proceeds in small-cap shares.
B. shorting the small-cap shares and investing the proceeds in large-cap shares.
C. investing 50% in small-cap shares and another 50% in small-cap shares.
Correct Answer: A
Each of the factors can be seen as the mean return to a zero-net investment, long-short portfolio.
User Contributed Comments 5
| User | Comment |
|---|---|
| Offboard | could smb explain the answer to me? |
| arudkov | i was thinking SMB is extra return on small-cap shares compared with index or chips. |
| cfaajay | Fama-French model says that small cap will give higher return then large cap ,so short sell large cap and invest in small cap ,and earn the profit... |
| shajidubai | Small -(minus) Big implies short big and long small |
| Roy1 | Nice one! |