Size and Value Matter, But Not the Way You Thought

58 Pages Posted: 20 Aug 2015 Last revised: 28 Jul 2016

See all articles by Marie Lambert

Marie Lambert

University of Liège - HEC Liège

Boris Fays

University of Liège - HEC Management School

Georges Hübner

HEC Liège

Multiple version iconThere are 2 versions of this paper

Date Written: August 19, 2015

Abstract

Fama and French risk premiums do not reliably estimate the magnitude of the size or book-to-market effects, inducing many researchers to inflate the number of factors. We object that controlling ex ante for noise in the estimation procedure enables to keep a parsimonious set of factors. We replace Fama and French’s independent rankings with the conditional ones introduced by Lambert and Hübner (2013). This alternative framework generates much stronger “turn-of-the-year” size and “through-the-year” book-to-market effects than conventionally documented. Furthermore, the factors deliver less specification errors when used to price portfolios, especially regarding the “small angels” (low size – high B/M stocks).

Keywords: size, value, small angels, Fama and French, sequential sorting, January effects

JEL Classification: G11, G12

Suggested Citation

Lambert, Marie and Fays, Boris and Hübner, Georges, Size and Value Matter, But Not the Way You Thought (August 19, 2015). 28th Australasian Finance and Banking Conference, Available at SSRN: https://ssrn.com/abstract=2647298 or http://dx.doi.org/10.2139/ssrn.2647298

Marie Lambert

University of Liège - HEC Liège ( email )

rue Louvrex 14
Liège, 4000
Belgium

Boris Fays

University of Liège - HEC Management School ( email )

Liège
Belgium

Georges Hübner (Contact Author)

HEC Liège ( email )

Rue Louvrex 14, Bldg. N1
Liege, 4000
Belgium
+32 42327428 (Phone)

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