Characteristics, Covariances, and Average Returns: 1929-1997

24 Pages Posted: 12 Aug 1998  

James L. Davis

Dimensional Fund Advisors Inc.

Eugene F. Fama

University of Chicago - Finance

Kenneth R. French

Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 1999

Abstract

The value premium in U.S. stocks returns is robust. The positive relation between average return and book-to-market equity (BE/ME) is as strong for 1929-63 as for the subsequent period studied in previous papers. Like others, we also find a size premium in stock returns. Small stocks have higher average returns than big stocks. The size premium is, however, weaker and less reliable than the value premium. The relations between average return and firm characteristics (size and BE/ME) are better explained by a three-factor risk model than by the behavioral hypothesis that investor overreaction causes characteristics to be compensated irrespective of risk loadings.

JEL Classification: G12

Suggested Citation

Davis, James L. and Fama, Eugene F. and French, Kenneth R., Characteristics, Covariances, and Average Returns: 1929-1997 (February 1999). Center for Research in Security Prices (CRSP) Working Paper No. 471. Available at SSRN: https://ssrn.com/abstract=98678 or http://dx.doi.org/10.2139/ssrn.98678

James L. Davis

Dimensional Fund Advisors Inc. ( email )

1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
United States

Eugene F. Fama (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)

Kenneth R. French

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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