Fama and French Claim That After Controlling for Firm Size

question 29

Multiple Choice

Fama and French claim that after controlling for firm size and the ratio of the firm's book value to market value, beta is:
I. Highly significant in predicting future stock returns
II. Relatively useless in predicting future stock returns
III. A good predictor of the firm's specific risk

• A) I only
• B) II only
• C) I and III only
• D) I, II, and III

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Definitions:

Depreciation Expense

A non-cash charge that reduces the value of an asset over time due to use, wear and tear, or obsolescence.

Residual Value

The estimated value of an asset at the end of its useful life, determining the depreciation amount to be allocated during the asset's lifespan.

Composite Rate

A single interest rate that reflects the combination of rates applied to several different financial transactions or loans.