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WHAT DOES β SMB > 0 REALLY MEAN?
Author(s) -
Chen Hsiulang,
Bassett Gilbert
Publication year - 2014
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12047
Subject(s) - portfolio , attribution , econometrics , economics , regression , financial economics , statistics , mathematics , psychology , social psychology
A positive SMB coefficient in a Fama–French regression is often interpreted as signaling a portfolio weighted toward small‐cap stocks. We present a very large portfolio, which has a positive SMB coefficient for all periods. We emphasize that this is associated with the coexistence of both “M”—the market—and “SMB”—the mimicking portfolio for size—in the Fama–French three‐factor model. We explain why the model can attribute small size to large‐cap stocks and portfolios. The results highlight how coefficients should be interpreted when a self‐financing portfolio is used for portfolio attribution.