Size and Value Matter, But Not the Way You Thought

68 Pages Posted: 30 May 2016 Last revised: 2 Feb 2017

See all articles by Marie Lambert

Marie Lambert

University of Liege - HEC Management School

Boris Fays

University of Liege, HEC Management School

Georges Hübner

HEC Liège

Multiple version iconThere are 2 versions of this paper

Date Written: November 11, 2016

Abstract

We propose a fundamental methodological change to Fama and French (1993) factor construction procedure. Consistent with Lambert and Hübner (2013) sequential sorting procedure to classify stocks, our methodology controls ex ante for pricing errors produced by multifactor models. Our size and value factors deliver less specification errors when used to price passive portfolios including the new portfolio sorts of Fama and French (2015a, b). The sequential model delivers excellent pricing performance for corner portfolios such as low size and high B/M stocks. Furthermore, this alternative framework generates much stronger “turn-of-the-year” size and “through-the-year” book-to-market effects than conventionally documented.

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 (November 11, 2016). Paris December 2016 Finance Meeting EUROFIDAI - AFFI. Available at SSRN: https://ssrn.com/abstract=2786301 or http://dx.doi.org/10.2139/ssrn.2786301

Marie Lambert (Contact Author)

University of Liege - HEC Management School ( email )

HEC-Liège
rue Louvrex 14
LIEGE, Liege 4000
Belgium

Boris Fays

University of Liege, HEC Management School ( email )

Liège
Belgium

Georges Hübner

HEC Liège ( email )

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

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