| Article ID: | iaor201523439 |
| Volume: | 37 |
| Issue: | 4 |
| Start Page Number: | 543 |
| End Page Number: | 552 |
| Publication Date: | Dec 2014 |
| Journal: | Journal of Financial Research |
| Authors: | Chen Hsiu-lang, Bassett Gilbert |
| Keywords: | investment, statistics: regression |
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.