Question

What do the smb and hml factors in the fama french three factor model capture? Does poor performance of small stocks in the 1980s and 1990s and value stocks in late 1990s refute the fama french three factor model?

Answer 1

The Fama-French Three-factor Model is an extension of the Capital Asset Pricing ... stock performance through market risk and outperformance of small-cap ... High Minus Low ( HML) is a value premium.

The Fama and French model has three factors: size of firms, book-to-market values and excess return on the market. In other words, the three factors used are SMB (small minus big), HML (high minus low) and the portfolio's return less the risk free rate of return.