The Review of Asset Pricing Studies Vol. 12 No. 4 2022
What Drives the Size and Value Factors?
open access
Abstract
I find that approximately 30% of price fluctuations in the Fama-French size and value factors are nonfundamental price pressures driven by correlated fund flows, which generate price movements that revert over time. Is this really demand-based price pressure? I show that the price effects happen exclusively in periods when mutual funds place trades, a fact that is difficult to explain using traditional mechanisms such as unobserved investor preference changes. The estimated price elasticity is also consistent with other studies. Overall, my findings show that a sizable fraction of size and value factor movements do not represent economic risk.
- DOI
- 10.1093/rapstu/raac016
- Volume
- 12
- Issue
- 4
- Pages
- 845-885
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref