In 2013, Fama shared the Nobel Memorial Prize in Economic Sciences for his empirical analysis of asset prices.
SMB stands for "Small [market capitalization] Minus Big" and HML for "High [book-to-market ratio] Minus Low"; they measure the historic excess returns of small caps over big caps and of value stocks over growth stocks, alpha is the error term.
The Fama–French three-factor model explains over 90% of the diversified portfolios returns, compared with the average 70% given by the CAPM (within sample).
[6] Therefore, updated risk factors are available for other stock markets in the world, including the United Kingdom, Germany and Switzerland.
In a recent paper, Foye, Mramor and Pahor (2013) propose an alternative three factor model that replaces the market value of equity component with a term that acts as a proxy for accounting manipulation.
If the model fully explains stock returns, the estimated alpha should be statistically indistinguishable from zero.
Whilst a momentum factor wasn't included in the model since few portfolios had statistically significant loading on it, Cliff Asness, former PhD student of Eugene Fama and co-founder of AQR Capital has made the case for its inclusion.