On the differences in measuring SMB and HML in the UK: do they matter?

Michou, Maria; Mouselli, Sulaiman; Stark, Andrew

Abstract

The FamaeFrench (FF) three factor model expands the capital asset pricing model (CAPM) to include two additional factors to the market factor e 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.

Citation

Michou, M., Mouselli, S., & Stark, A. (2014). On the differences in measuring SMB and HML in the UK: do they matter?. British Accounting Review, 46(3), 281-294. doi:10.1016/j.bar.2014.03.004

• Journal Article Type: Article
• Acceptance Date: Mar 21, 2014
• Online Publication Date: Apr 13, 2014
• Publication Date: Sep 30, 2014
• Deposit Date: Mar 11, 2019
• Journal: The British Accounting Review
• Print ISSN: 0890-8389
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 46
• Issue: 3
• Pages: 281-294
• DOI: https://doi.org/10.1016/j.bar.2014.03.004
• Public URL: https://nottingham-repository.worktribe.com/output/1625864
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0890838914000316#!