WHAT DOES β SMB > 0 REALLY MEAN?

Hsiu-lang Chen and Gilbert Bassett

Journal of Financial Research, 2014, vol. 37, issue 4, 543-552

Abstract: type="main" xml:lang="en">

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.

Date: 2014
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