Carhart's four-factor model adds momentum as the fourth factor
Image: Bill Holler, CC BY-SA 2.0, via Wikimedia Commons
Carhart four-factor model
Carhart's four-factor model adds momentum as the fourth factor
Carhart's four-factor model expands on the Fama-French three-factor model by including momentum as an additional factor. Momentum refers to the speed or velocity of price changes in a stock.
Example
A stock showing consistent upward momentum may outperform others as predicted by Carhart's model.
Understanding Carhart's model helps investors identify stocks with strong momentum, potentially leading to better investment decisions.
Related concepts
Fama–French three-factor model
Fama-French model adds size and value factors to CAPM
Capital asset pricing model
Treynor-Black model combines active stock picking with a passive market portfolio
Permanent income hypothesis
Permanent income hypothesis (PIH) focuses on permanent income for consumption decisions
Giffen good
Giffen goods defy the law of demand by increasing demand as prices rise
Elasticity (economics)
Price elasticity of demand = -2
Quantity theory of money
MV = PY equation
Educational content, not financial advice.
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