Security Analysis & Portfolio Management

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1. Introduction
Before Fama and French question it, most business schools taught their student CAPM is the means of describing the relationship between expected return and risk in stocks. In 1992, Fama and French hade a study on stock market decision factors of differences between stock returns, they found the beta (sensitivity to the market return) of the CAPM cannot explain all the differences between the stock returns, and the market value, book value ratio, p/e ratio of listed companies can explain the differences between the stock returns. The Capital Asset Pricing Model (CAPM) by Sharpe (1964), Lintner (1965), Black (1972), believe that stock returns just relative to the risk of the whole stock market. But in fact, only measures the risk cannot explain all the variation in expect returns, the sensitivity to the market return is more complicated. This article will show the different between Capital Asset Pricing Model and Fama & French Model, and the way to analysis the stock return.

2. Comparison of Value versus Growth Stock
2.1 Value Stock & Growth Stock
In this article, the researchers define the value stock as those stocks that have low ratios of book value to market value, the growth stocks as those that have low ratios of book value to market value.

2.2 Findings of Value versus Growth Stock on Investing
Most investors think the growth stocks can bring a better return, because they think those are good company, and the returns will be high. But the researchers find the growth can bring a better return, the value stocks got a high price by the market, which make their returns be low. In fact, the growth stocks have low ratios of book value to market value, it make the growth stocks get good return.

3. Determinants of stock return
Fama and French founding that the market risk factor and the value-growth risk factor can explain average return of this set of large international stocks. The market risk factor is the...
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