I am unsure of how to interpret stocks that have a low P/b but have a low beta when regressed onto the HML portfolio. Conversely, I have found stocks that are not cheap but have a high beta to HML portfolio. So my question is, if value out performs, should I be buying stocks that have low p/b or stocks that have a high beta to the HML portfolio? I am not going to be tradig Value per se but I would like to apply the methodology in other spaces.

Thanks for your time.

  • 2
    $\begingroup$ This is known in the literature as the "Characteristics or Covariances" debate. Fama and French argue you should buy stocks that have high covariance (i.e. Beta) to HML portfolio. Kent Daniel and S. Titman argue you should buy stocks that have high B/P, i.e stocks with the characteristic that their B/P is high. There have been some recent efforts to settle the debate, but I am not uptodate on them... $\endgroup$
    – nbbo2
    Jan 10, 2020 at 21:52
  • $\begingroup$ Thank you. This recent article answered all my questions alphaarchitect.com/2017/10/31/… $\endgroup$ Jan 13, 2020 at 5:26


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