Why Fama and French Use June Market Capitalization for Size Sorts

Summary

The document explains the timing difference in the Fama–French stock sorts: size is measured using June market capitalization, while book-to-market uses accounting equity from the prior fiscal year and market capitalization from the prior December. The central rationale given for June size data is avoiding look-ahead bias. Stock prices are observable promptly, but accounting information may not yet have been published when portfolios are formed, so the sort should use information available at that time.

The replies also distinguish the timing logic for book-to-market: December market value is paired with the prior fiscal-year book value. A cited alternative argues for using June market capitalization to make the ratio more current, though this breaks the December alignment; the document says the original convention remains standard in the literature. It offers a concise account of timing choices rather than a full treatment of publication lags, portfolio formation, or empirical effects of alternative definitions.

Key ideas

• June market capitalization is used for the size sort to reduce look-ahead bias.
• Stock prices are generally observable sooner than annual accounting data.
• The traditional book-to-market measure pairs prior-year book equity with December market value.
• Using June market capitalization can make book-to-market more current but changes the standard alignment.

Tags

# Why Fama and French sort on June's size data and not of some other period?


# Why Fama and French sort on June's size data and not of some other period?












In Fama and French (1993), p. 8, I read "In June of each year $t$ from 1963 to 1991, all NYSE stocks on CRSP are ranked on size (price times shares)."

Later on the same page, they write "Book-to-market equity, $BE/ME$, is then book common equity for the fiscal year ending in calendar year $t-1$, divided by market equity at the end of December of $t-1$."

December seems fine: a year ends in December. But why do they choose June and not December, too, for the size?

## Answer by Tim  (score 4, accepted)

https://quant.stackexchange.com/a/26074

It is true that FF always use December for their fundamental metrics as this is the end of the fiscal year for most companies. However, the annual reports of the companies are not directly available and so are fundamental data. Thus, the main reason for using June it to avoid look ahead bias.

## Answer by Cyurmt (score 2)

https://quant.stackexchange.com/a/33068

Size uses June market-cap data because market prices, unlike accounting data, is publicly available immediately. Book-to-market uses market-cap data from December to align with December book-value data. Asness, Frazzini (2013) The Devil in HML's Details argues for calculating a more up-to-date book-to-market by using June market-cap data (even though it is no long aligned to December book-value). Still, how Fama-French does it remains the standard approach in the literature.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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