The Carhart Four-Factor Model is an asset pricing model that expands upon the Fama-French Three-Factor Model by adding a fourth factor, which is the momentum factor. This model provides a more comprehensive framework for understanding stock returns by including not just market risk, size, and value, but also the tendency of stocks that have performed well in the past to continue performing well in the future. This extension makes it a valuable tool for investors looking to analyze and predict stock performance.
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