00Thaler_FM i-xxvi.qxd

CHARACTERISTICS AND RETURNS 331

Table 9.2

Pre-Formation Monthly Return Standard Deviations of Portfolios

This table presents pre-formation characteristics of the set of size and book-to-
market portfolios. Six portfolios are formed based on unconditional sorts on book-
to-market (B/M) (High, Medium, and Low) and size (Small and Big). Mkt, SMB,
HML portfolios are also formed (Fama and French (1993) using 30 percent and 70
percent breakpoints for book-to-market and a 50 percent breakpoint for size). For
this table, we also impose the additional requirement the CRSP report a valid return
for the firm five years (prior to/after) to the formation for the (forward/backward)
looking analysis. The formation year 0 returns consists of returns from July of year
tthrough June of year t+1 for value-weighted portfolios reformed each year at the
end of June of year t, based on the B/M at the end of year t−1 and the market value
in June of t. These returns are approximately equivalent to those presented in Fama
and French (1993). For formation years (FY) other than zero, the portfolio time se-
ries of returns consists again of the returns from July of year tthrough June of year
t+1, but are now formed based on the B/M at the end of year t− 1 +FY and the
market value in the June of t+FY. The portfolio weights in these calculations are
based on the market value in June of t+FY.
Panel A presents the simple time-series standard deviations of each of these port-
folios. For the backward looking portfolios, for each of the six lags, the return time
series is from 63:07 to 89:06. For the forward-looking portfolios, the time period is
68:07–93:12. Panel B also presents the time-series standard deviations the portfo-
lios, but here the January returns are excluded from each of the time series.

Formation Year

Size/BM Backward Looking Forward Looking
Portfolio 5432100 − 1 − 2 − 3 − 4 − 5

Panel A: Standard Deviations

L/S 7.01 6.94 6.95 6.97 6.74 6.61 6.56 6.60 6.70 6.62 6.57 6.41
M/S 5.73 5.77 5.74 5.67 5.61 5.55 5.25 5.36 5.46 5.45 5.43 5.42
H/S 5.74 5.73 5.69 5.70 5.97 5.67 5.25 5.18 5.38 5.48 5.47 5.40
L/B 4.89 4.92 4.84 4.88 4.91 4.82 4.61 4.66 4.79 4.83 4.81 4.79
M/B 4.42 4.40 4.47 4.49 4.47 4.37 4.16 4.27 4.37 4.46 4.48 4.42
H/B 4.61 4.68 4.59 4.58 4.77 4.55 4.23 4.23 4.27 4.34 4.37 4.46
Mkt 5.13 5.13 5.09 5.07 5.05 4.96 4.74 4.80 4.92 4.94 4.93 4.88
SMB 3.04 3.02 2.96 2.88 2.78 2.80 2.63 2.68 2.76 2.79 2.78 2.75
HML 2.20 2.29 2.53 2.88 3.30 2.55 2.51 2.28 2.12 2.13 2.20 2.21

Panel B: Standard Deviations–Januarys Excluded

L/S 6.63 6.54 6.60 6.66 6.59 6.31 6.22 6.15 6.20 6.17 6.06 5.90
M/S 5.32 5.37 5.33 5.28 5.27 5.16 4.84 4.92 5.03 5.00 5.01 5.01
H/S 5.30 5.26 5.13 5.09 5.21 5.11 4.63 4.67 4.91 5.03 5.07 4.99
L/B 4.83 4.85 4.76 4.77 4.82 4.73 4.46 4.48 4.58 4.62 4.62 4.61
M/B 4.33 4.30 4.34 4.37 4.27 4.21 3.90 4.08 4.17 4.27 4.25 4.21
H/B 4.42 4.45 4.33 4.27 4.32 4.27 3.88 3.87 4.05 4.14 4.23 4.27
Mkt 4.89 4.87 4.82 4.79 4.76 4.68 4.40 4.45 4.59 4.62 4.62 4.57
SMB 2.74 2.71 2.66 2.60 2.62 2.56 2.39 2.41 2.47 2.54 2.54 2.52
HML 2.20 2.31 2.46 2.76 2.92 2.45 2.38 2.24 2.09 2.09 2.15 2.18