On the differences in measuring SMB and HML in the UK – Do they matter?

Maria Michou, Sulaiman Mouselli and Andrew Stark

The British Accounting Review, 2014, vol. 46, issue 3, 281-294

Abstract: The Fama–French (FF) three factor model expands the capital asset pricing model (CAPM) to include two additional factors to the market factor – SMB, employed to capture a firm size effect in returns and HML employed to capture book-to-market effects in returns. In the UK, different researchers use different ways of calculating SMB and HML in the context of empirical applications of the three factor model, or extensions of it, perhaps because they believe the differences in the construction of the SMB and HML factors to be relatively unimportant from an empirical standpoint. We investigate whether indeed factor construction methods are unimportant. Our conclusion is that they do matter.

Keywords: Asset pricing; Book-to-market; Fama and French model; Size (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G15 M41 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:46:y:2014:i:3:p:281-294

DOI: 10.1016/j.bar.2014.03.004

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