What Drives the Size and Value Factors?

35 Pages Posted: 2 Feb 2017 Last revised: 23 Jul 2020

See all articles by Jiacui Li

Jiacui Li

David Eccles School of Business, University of Utah

Date Written: July 1, 2019

Abstract


I show that over 40% of movements in the Fama-French size and value factors are temporary price pressures. Since 1980, investors frequently made large capital reallocations across mutual funds of different size and value styles, generating large factor-level price pressures that completely reverse subsequently. Further corroborating the price pressure interpretation, flow-induced price movements happen exclusively in intraday (open to close) returns, but not in overnight (close to open) returns, consistent with the fact that mutual funds tend to trade during market hours. Overall, these findings imply that a sizeable fraction of factor movements do not represent fundamental risk.

Keywords: Fama-French Three Factor Model, Price Pressures, Style Investing

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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