Fama-French is not a “model of market efficiency.” Honesteconomists describe it as the best challenge to Fama’s theory of efficiency. Sometimes Fama tries to reconcile this model with efficiency by proposing that there is a fat tail of risk correlated with the anomalies, but this is just a hypothesis, a research program, not something that has any evidence beyond the anomaly.
I should perhaps clarify that I am talking about weak form efficiency. In a weak-form efficient market, active management through fundamental analysis can still produce excess returns. The three and five factor models attempt to find fundamental factors that can predict excess returns. This contradicts the stronger forms of EMH, but it stands just fine with the weak form. In addition, academic practitioners use the five factor model often in defense of weak EMH.
To your point, perhaps I should edit the original article though. Investopedia says of the FF model, “there is a lot of debate about whether the outperformance tendency is due to market efficiency or market inefficiency.”
Fama-French is not a “model of market efficiency.” Honest economists describe it as the best challenge to Fama’s theory of efficiency. Sometimes Fama tries to reconcile this model with efficiency by proposing that there is a fat tail of risk correlated with the anomalies, but this is just a hypothesis, a research program, not something that has any evidence beyond the anomaly.
I should perhaps clarify that I am talking about weak form efficiency. In a weak-form efficient market, active management through fundamental analysis can still produce excess returns. The three and five factor models attempt to find fundamental factors that can predict excess returns. This contradicts the stronger forms of EMH, but it stands just fine with the weak form. In addition, academic practitioners use the five factor model often in defense of weak EMH.
To your point, perhaps I should edit the original article though. Investopedia says of the FF model, “there is a lot of debate about whether the outperformance tendency is due to market efficiency or market inefficiency.”