The Fama-French Three-Factor Model is a financial model that explains stock returns using three key factors: market risk, size, and value. Developed by economists Eugene Fama and Kenneth French, it builds on the Capital Asset Pricing Model (CAPM) by adding two additional factors to better capture the variations in stock performance. The first factor is the overall market return, while the second factor accounts for the size effect, indicating that smaller companies tend to outperform larger ones. The third factor focuses on the value effect, suggesting that stocks with low prices relative to their fundamentals tend to yield higher returns.