Critical Finance Review > Vol 14 > Issue 3

Is the Value Premium Smaller Than We Thought?

By Mathias Hasler, Carroll School of Management, Boston College, USA, haslerm@bc.edu

 
Suggested Citation
Mathias Hasler (2025), "Is the Value Premium Smaller Than We Thought?", Critical Finance Review: Vol. 14: No. 3, pp 357-386. http://dx.doi.org/10.1561/104.00000161

Publication Date: 07 Jul 2025
© 2025 Mathias Hasler
 
Subjects
 
Keywords
G10G11G12G14C1C2
Value premiumHML portfolioResearch decisionsChance resultStatistical biases
 

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In this article:
1. Related Literature 
2. HML Portfolios 
3. Is the Original Value Premium Estimate Biased? 
4. Spanning Regressions 
5. Conclusion 
References 

Abstract

The construction of the original HML portfolio (Fama and French, 1993) includes six seemingly innocuous decisions that could easily have been replaced with alternatives that are just as reasonable. I propose such alternatives and construct HML portfolios. In sample, the average of these alternative estimates of the value premium is smaller than the original estimate of the value premium. The difference is 0.08% per month and statistically significant. Out of sample, however, this difference is statistically indistinguishable from zero. The results suggest that the original value premium estimate is upward biased because of a potential chance result in the original research decisions.

DOI:10.1561/104.00000161