Small Minus Big (SMB)
One of three factors in the Fama and French stock pricing model. SMB accounts for the spread in returns between small- and large-sized firms, which is based on the company's market capitalization.
This factor is referred to as the "small firm effect", as smaller firms tend to outperform large ones. Investopedia Says:
Fama and French's Three Factor model is a way to evaluate a portfolio manager's returns. A typical measure of good performance is large excess returns. The model's three factors, including SMB, attempt to explain excess returns made by a manager's portfolio. Incorporating SMB shows whether management was relying on the small firm effect (investing in stocks with low market capitalization) to earn an abnormal return. If the manager was buying only small-cap stocks, then his excess return would be diminished compared to if high yielding large stocks were also selected. Related Terms:
Fama And French Three Factor Model
Large Cap (Big Cap)
Market Capitalization
Small Cap
Small Firm Effect
Small-Value Stock |