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  Description of Fama/French Benchmark Factors

The Fama/French benchmark factors, Rm-Rf, SMB, and HML, are constructed from six size/book-to-market benchmark portfolios that do not include hold ranges and do not incur transaction costs.

Rm-Rf, the excess return on the market, is the value-weighted return on all NYSE, AMEX, and NASDAQ stocks (from CRSP) minus the one-month Treasury bill rate (from Ibbotson Associates).

SMB (Small Minus Big) is the average return on three small portfolios minus the average return on three big portfolios,

  SMB = 1/3 (Small Value + Small Neutral + Small Growth)
 - 1/3 (Big Value + Big Neutral + Big Growth).
HML (High Minus Low) is the average return on two value portfolios minus the average return on two growth portfolios,
  HML = 1/2 (Small Value + Big Value)
 - 1/2 (Small Growth + Big Growth).

See Fama/French, 1993, “Common Risk Factors in the Returns on Stocks and Bonds,” Journal of Financial Economics, for a complete description of the factor returns.





Copyright Kenneth R. French