Migration

24 Pages Posted: 28 Aug 2006  

Eugene F. Fama

University of Chicago - Finance

Kenneth R. French

Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2007

Abstract

We study how migration of firms across size and value portfolios contributes to the size and value premiums in average stock returns. The size premium is almost entirely due to the small stocks that earn extreme positive returns and as a result become big stocks. The value premium has three sources: (i) value stocks that improve in type either because they are acquired by other firms or because they earn high returns and so migrate to a neutral or growth portfolio; (ii) growth stocks that earn low returns and as a result move to a neutral or value portfolio; and (iii) slightly higher returns on value stocks that remain in the same portfolio compared to growth stocks that do not migrate.

Keywords: Size premium, value premium, average returns

JEL Classification: G12

Suggested Citation

Fama, Eugene F. and French, Kenneth R., Migration (February 2007). CRSP Working Paper No. 614. Available at SSRN: https://ssrn.com/abstract=926556 or http://dx.doi.org/10.2139/ssrn.926556

Eugene F. Fama (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)

Kenneth R. French

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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