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What Does Β Smb > 0 Really Mean?

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  • Hsiu-lang Chen
  • Gilbert Bassett

Abstract

type="main" xml:lang="en"> A positive SMB coefficient in a Fama–French regression is often interpreted as signaling a portfolio weighted toward small-cap stocks. We present a very large portfolio, which has a positive SMB coefficient for all periods. We emphasize that this is associated with the coexistence of both “M”—the market—and “SMB”—the mimicking portfolio for size—in the Fama–French three-factor model. We explain why the model can attribute small size to large-cap stocks and portfolios. The results highlight how coefficients should be interpreted when a self-financing portfolio is used for portfolio attribution.

Suggested Citation

  • Hsiu-lang Chen & Gilbert Bassett, 2014. "What Does Β Smb > 0 Really Mean?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 37(4), pages 543-552, December.
    • Handle: RePEc:bla:jfnres:v:37:y:2014:i:4:p:543-552
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    Cited by:

    1. Mateus, Irina B. & Mateus, Cesario & Todorovic, Natasa, 2019. "Review of new trends in the literature on factor models and mutual fund performance," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 344-354.
    2. Krauss, Christopher & Stübinger, Johannes, 2015. "Nonlinear dependence modeling with bivariate copulas: Statistical arbitrage pairs trading on the S&P 100," FAU Discussion Papers in Economics 15/2015, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    3. Steffen Hundt & Andreas Horsch, 2019. "Sponsorship of the FIFA world cup, shareholder wealth, and the impact of corruption," Applied Economics, Taylor & Francis Journals, vol. 51(23), pages 2468-2491, May.
    4. Irina Bezhentseva Mateus & Cesario Mateus & Natasa Todorovic, 2019. "Benchmark-adjusted performance of US equity mutual funds and the issue of prospectus benchmarks," Journal of Asset Management, Palgrave Macmillan, vol. 20(1), pages 15-30, February.
    5. Johannes St binger & Jens Bredthauer, 2017. "Statistical Arbitrage Pairs Trading with High-frequency Data," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 650-662.

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