Value stocks have high book-to-market ratios, and growth stocks have low book-to-market. ratios. The value effect is that in the past value stocks have had higher average return than growth stocks. 1. Is the value effect consistent with CAPM? Why or why not? 2. What other risk and return model has been used to explain the value effect? What economic interpretation can you give for the risk source associated with value stocks in that model? lem 2 An empirical regularity is that small firms eam an excess risk adjusted expected return: Smallrf=Small+Small(rmrf)Small>0. Explain this finding in the context of the empirical performance of CAPM versus that of multifactor models? lem 3 Suppose you estimate for a single security a five-lactor model jrf=j+1f1+2f2+ 3f3+4f4+5f5 and you find that j is positive and signilicant. What does it mean for the validity of APT