How Timely Prices Change the Fama–French HML Value Factor

Summary

This review of Asness and Frazzini examines how price timing affects the book-to-price measure used to form the HML value factor. The standard Fama–French approach pairs accounting book value with a prior fiscal year-end price, then updates portfolios annually. The article compares that approach with using a more recent price at annual formation and with refreshing prices monthly while keeping accounting data appropriately lagged.

The study uses US and global common-stock samples and evaluates factor portfolios alongside market, size, momentum, and short-term reversal factors. It reports that recent returns help predict later changes in book value, so matching book value with an older price can discard useful information. The reviewed results favor more timely price updates, particularly when assessing value in combination with momentum. These findings depend on the sample, portfolio construction, and factor controls; the summary does not provide enough detail to independently assess implementation costs or out-of-sample performance.

Key ideas

• The standard HML method can use prices that are substantially older than the portfolio formation date.
• The study compares annual lagged-price, annual current-price, and monthly price-update approaches to book-to-price.
• Recent stock returns predict some future book-value changes, though the relationship fades over time.
• More timely price updates improve the reviewed value-factor results, especially in combination with momentum.
• Portfolio formation and factor controls affect how the results should be interpreted.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.