Size Matters, Book Value Does Not! The Fama-French Empirical CAPM Revisited

Posted: 19 Nov 2015

See all articles by Marie Lambert

Marie Lambert

University of Liege - HEC Management School

Georges Hübner

HEC Liège

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2014

Abstract

The Fama and French (F&F) factors do not reliably estimate the size and book-to-market effects. Our paper shows that the former has been underestimated in the US market while the latter overestimated. We do so by replacing F&F's independent rankings by the conditional ones introduced by Lambert and Hubner (2013), over which we improve the sorting procedure. This new specification better reflects the properties of the individual risk premiums. We emphasize a much stronger size effect than conventionally documented. As a major related outcome, the alternative risk factors deliver less specification errors when used to price passive investment indices.

Keywords: Asset Pricing, Size, Book-to-market, momentum, mimicking portfolios

Suggested Citation

Lambert, Marie and Hübner, Georges, Size Matters, Book Value Does Not! The Fama-French Empirical CAPM Revisited (May 1, 2014). Available at SSRN: https://ssrn.com/abstract=2659766 or http://dx.doi.org/10.2139/ssrn.2506690

Marie Lambert (Contact Author)

University of Liege - HEC Management School ( email )

HEC-Liège
rue Louvrex 14
LIEGE, Liege 4000
Belgium

Georges Hübner

HEC Liège ( email )

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

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