What Drives the Size and Value Factors?

37 Pages Posted: 2 Feb 2017 Last revised: 11 Feb 2021

See all articles by Jiacui Li

Jiacui Li

David Eccles School of Business, University of Utah

Date Written: July 1, 2019

Abstract

Academics often assume that price fluctuations of asset pricing factors are driven by cash flow and discount rate variation. However, I show that around 30% of fluctuations in the Fama-French size and value factors are temporary, demand-driven price pressures. Specifically, investors frequently make large capital reallocations across mutual funds of different size and value styles, generating large factor-level price movements that completely reverse subsequently. Further corroborating the demand-driven interpretation, these price pressures happen exclusively in periods when mutual funds place trades. Overall, the findings indicate that investor demand can explain a significant fraction of market-wide price movements.

Keywords: Asset Pricing Factors, Excess Volatility, Demand Effects, Price Pressures

JEL Classification: G10, G12, G23, G40

Suggested Citation

Li, Jiacui, What Drives the Size and Value Factors? (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=2909960 or http://dx.doi.org/10.2139/ssrn.2909960

Jiacui Li (Contact Author)

David Eccles School of Business, University of Utah ( email )

8123 SFEBB, 1655 Campus Center Dr
Salt Lake City, UT 84112
United States

HOME PAGE: http://https://www.jiacui-li.com/

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