medium · FRM Part 1 Foundations of Risk Management
The Fama-French High-Minus-Low (HML) factor is constructed to capture the 'Value Premium.'
How is this factor numerically calculated each period?
- The total return of a broad market-cap-weighted equity index minus the prevailing short-term risk-free rate.
- The average dividend yield paid by value stocks minus the average yield paid by growth stocks.
- The average share price of large market-capitalization stocks minus the average price of low-market-cap stocks.
- The return of a portfolio of high book-to-market stocks minus the return of low book-to-market stocks.
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