Fama and French do not believe the excess return from value investing is not without consequence.
This model expands on the Fama-French Three-Factor Model by adding a stock momentum risk factor.
But by some measures, Fama says, the market starts too look smooth at larger timescales.
He does not see markets as efficient in Mr Fama's sense, but thinks they are fiercely competitive.
In the end, Fama conceded that returns were not normal but insisted that the market portfolio was still unbeatable.
FORBES: Wise Up: 'Normal' Market Behavior Is Not Normal But Crazy Is
One way to employ a value tilt in a portfolio is to use the Fama-French Three Factor Model.
The small-cap premium is eloquently deconstructed by the Fama-French Three Factor Model.
In 1992, Eugene Fama and Ken French outlined the importance of analyzing multiple risk factors when attempting to explain portfolio performance.
Gene Fama and Ken French popularized this methodology for investors during the 1990s by introducing the Fama-French Three-Factor Model.
"You're left with a situation where over short intervals his model looks good, but over long intervals it doesn't seem to work, " Fama says.
Mr Fama and Mr French find no evidence that companies stop paying dividends (or do not start) because they can buy back shares instead.
Famed academics Gene Fama and Ken French enjoy the stability of book value and this leads them to high book-to-market companies (high BtM).
At first glance, it may be easy to see a number of deficiencies in the efficient market theory, created in the 1970s by Eugene Fama.
"I think everyone accepts that his basic point is true, " says Eugene Fama , professor of finance at the University of Chicago's Graduate School of Business.
Warren Buffet loves them, Mario Gabelli loves them, Seth Klarman loves them and ardent followers of the Fama-French Three Factor Model are infatuated with them.
This is an efficient market view and it is supported by well-known academics Eugene Fama and Ken French, creators of the Fama-French Three Factor Model.
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Eugene Fama asserted that investment returns follow a normal distribution.
FORBES: Wise Up: 'Normal' Market Behavior Is Not Normal But Crazy Is
Subsequent research by Gene Fama and Ken French demonstrated that tilting a portfolio toward small companies and value (distressed) companies offers the opportunity for increased returns over the global market.
Some may be crackpots, but the list includes Nobel laureates (Gary Becker, Robert Lucas, Thomas Sargent) as well as other highly esteemed researchers (Robert Barro, John Cochrane, Eugene Fama, Greg Mankiw).
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At the other end of the spectrum are proponents of modern portfolio theory and efficient markets, academicians like Burton Malkiel of Princeton University and Eugene Fama of The University of Chicago.
And James Fama, vice president for energy delivery at the Edison Electric Institute, said the system appears to have worked well, given that the lights came back on and the circuitry was not damaged.
Fama admits there is evidence of skill with a handful of active fund managers, but the odds of picking the right mix of managers are as difficult as finding a needle in a haystack.
This finding is confirmed by 30 years of research, ranging from "behaviorists" such as Robert Shiller and Richard Thaler to "efficient marketers" such as Eugene Fama and Ken French, to "economists" such as John Campbell and myself.
Through their research, Malkiel and Fama have given credence to the belief that the history of stock-price movements contains no useful information that would enable an investor to consistently outperform a buy-and-hold strategy in managing a portfolio.
To give two high-profile examples, Ibbotson and Associates and the academic duo of Eugene Fama and Kenneth French did similar studies that found that value stocks, as measured by low price-to-book ratios, outperform growth stocks over the long run.
FORBES: For Total Return, Look To Small-Cap, Dividend-Paying Value Stocks
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