00Thaler_FM i-xxvi.qxd

CHARACTERISTICS AND RETURNS 335

Table 9.3

Mean Excess Monthly Returns (in Percentage) of the 45 Portfolios Formed on the

Basis of Size, Book-to-Market, and Predicted HML Factor Loadings

We first rank all NYSE firms by their book-to-market at the end of year t−1 and
their market capitalization (ME) at the end of June of year t. We form 33.3 percent
and 66.7 percent breakpoints for book-to-market and ME based on these rankings.
Starting in July of year t, we then place all NYSE/AMEX and NASDAQ stocks into
the three book-to-market groups and the three size groups based on these break-
points. The firms remain in these portfolios from the beginning of July of year tthe
end of June of year t+1. Each of the individual firms in these nine portfolios is then
further sorted into one of five subportfolios based on their βHMLcoefficients in the
regression:

The regression is run between 42 months and 6 months prior to the formation date
(June of year t), as is described in Section A. The value-weighted returns for each of
these portfolios are then calculated for each month between July 1973 and Decem-
ber 1993. The formation process results in portfolios which are buy-and-hold, and
which are rebalanced at the end of June of each year.
This table presents the mean excess returns of the 45 portfolios formed on the
basis of size (Sz), book-to-market (B/M) and the estimated factor loadings on the
HML portfolio, for the period from July 1973 through December of 1993. Each of
the five columns provides the monthly excess returns of portfolios of stocks that are
ranked in a particular quintile with respect to the HML factor loading (with column
1 being the lowest and column 5 being the highest). The firm size and book-to-
market rankings of the stocks in each of the portfolios are specified in the 9 rows.
For example, the top left entry in the table (0.202) is the mean excess return of a
value-weighted portfolio of the stocks that have the smallest size, the lowest book-
to-market, and the lowest expected loading on the HML factor.

Char Port Factor Loading Portfolio

B/M SZ 1 2 3 4 5

11 0.202 0.833 0.902 0.731 0.504
12 0.711 0.607 0.776 0.872 0.710
13 0.148 0.287 0.396 0.400 0.830

21 1.036 0.964 1.014 1.162 0.862
22 0.847 0.957 0.997 0.873 0.724
23 0.645 0.497 0.615 0.572 0.718

31 1.211 1.112 1.174 1.265 0.994
32 1.122 1.166 1.168 1.080 0.955
33 0.736 0.933 0.571 0.843 0.961

Average 0.740 0.817 0.846 0.866 0.806

̃ ̃ ̃( ̃ ).

RRijk,,−=+ ⋅ + ⋅ + ⋅ −f αβHMLRHML βSMB RSMB βMkt RRMkt f