A five-factormodeldirectedatcapturingthesize,value,profitability,andinvestment
patterns inaveragestockreturnsperformsbetterthanthethree-factormodelofFamaand
French(FF, 1993). Thefive-factormodel'smainproblemisitsfailuretocapturethelow
averagereturnsonsmallstockswhosereturnsbehavelikethoseoffirmsthatinvestalot
despitelowprofitability.Themodel'sperformanceisnotsensitivetothewayitsfactors
are defined.Withtheadditionofprofitabilityandinvestmentfactors,thevaluefactorof
the FFthree-factormodelbecomesredundantfordescribingaveragereturnsinthe
sampleweexamine