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What Does ßSMB>0 Really Mean?

Journal of Financial Research, Vol. 37, 2014

14 Pages Posted: 12 Sep 2015

See all articles by Hsiu-Lang Chen

Hsiu-Lang Chen

University of Illinois at Chicago - Department of Finance

Gilbert W. Bassett

University of Illinois at Chicago-Department of Finance

Date Written: August 9, 2014

Abstract

A positive SMB coefficient in a Fama-French regression is often interpreted as signaling a portfolio weighted toward small-cap stocks. We present a portfolio with known very large size, which has a positive SMB coefficient for all periods. We emphasize that this is associated with the co-existence 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.

JEL Classification: G10, G11

Suggested Citation

Chen, Hsiulang and Bassett, Gilbert W., What Does ßSMB>0 Really Mean? (August 9, 2014). Journal of Financial Research, Vol. 37, 2014. Available at SSRN: https://ssrn.com/abstract=2658380

Hsiulang Chen (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
(312) 355-1024 (Phone)

Gilbert W. Bassett

University of Illinois at Chicago-Department of Finance ( email )

725 University Hall (UH)
Chicago, IL 60607-7121
United States

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