WHAT DOES βSMB > 0 REALLY MEAN?

Abstract

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.