Fama-Bliss Model

The Fama-Bliss Model is an asset pricing framework that explains the returns on investments by decomposing them into two main components: a "size" effect and an "industry" effect. It suggests that a stock’s expected return is influenced by the company's market size and the industry it belongs to. Smaller companies tend to have higher returns due to higher risk, while different industries have unique risks and opportunities affecting returns. The model helps investors understand how these factors contribute to a stock's performance, facilitating better investment decision-making based on company size and industry characteristics.