"Although size and book to market equity seem like ad hoc variables for explaining average stock returns, we have reason to expect that they proxy for common risk factors in returns."

“The empirical successes of suggest that it is an equilibrium pricing model, a three-factor version of Merton’s intertemporal CAPM or Ross’s arbitrage pricing theory . In this view, SMB and HML mimic combinations of two underlying risk factors or state variables of special hedging concern to investors.”

“The question is when is good? The answer is never.”

“If assets are priced rationally, variables that are related to average returns, such as size and book-to-market equity, must proxy for sensitivity to common risk factors in returns. The time-series regressions give direct evidence on this issue. In particular, the slopes and R2 values show whether mimicking portfolios for risk factors related to size and capture shared variation in stock and bond returns not explained by other factors.”

“If active managers win, it has to be at the expense of other active managers. And when you add them all up, the returns of active managers have to be literally zero, before costs. Then after costs, it's a big negative sign”

“Firms that have a high BE/ME tend to have low earnings on assets. Conversely, low BE/ME is associated with persistently high earnings.”