Why International Fama–French Portfolios Use 90/10 Size Breakpoints

Summary

The document explains why Fama–French portfolio construction uses different size breakpoints in U.S. and international equity samples. In the U.S., the size breakpoint is calculated from NYSE stocks and then applied to the broader NYSE, AMEX, and NASDAQ universe. This means the resulting split across all U.S. stocks is not simply the overall market median.

For developed and emerging markets, the 90%/10% market-cap breakpoints are intended to create a split comparable to the NYSE-based U.S. convention. The cited international research says that the 90th-percentile market-cap threshold roughly corresponds to the NYSE median used to distinguish small and big stocks. This gives a rationale for consistency across markets, with the gap between an all-market median and the reference breakpoint more pronounced in emerging markets. The document summarizes the rationale but does not present portfolio performance tests or a detailed comparison of alternative breakpoint choices.

Key ideas

• U.S. Fama–French size breakpoints are based on NYSE stocks and applied to a wider U.S. stock universe.
• The resulting classification across all U.S. stocks need not split the sample at its overall median.
• International 90%/10% size breakpoints aim to mirror the NYSE-based size distinction.
• The cited rationale is that the international market-cap threshold roughly matches the NYSE median convention.

Tags

# Breaking points of Fama French portfolios


# Breaking points of Fama French portfolios












My question is about the size breakpoint of Fama French portfolios. Anyone knows why in US market data they used the median as a size breakpoint to construct the six portfolios, but when they used the developed and emerging markets data they used 90%/10% as a size breakpoint?

## Answer by AKdemy (score 1, accepted)

https://quant.stackexchange.com/a/68087

With respect to size in the U.S., Fama and French calculate breakpoints from the NYSE sample only, but apply the breakpoints to the whole sample of NYSE, AMEX, and NASDAQ stocks. You can find this definition on Kenneth R. French's website here and here.

The authors aim to mirror the NYSE breakpoints for all markets in order to keep it consistent (comparable). Even for non NYSE in the US you do not have the median anymore, but the difference is more pronounced for emerging markets.

Size, value, and momentum in international stock returns by Fama French clarifies this choice too:

> [...] 90% of market cap corresponds roughly to the NYSE median, used to define small and big stocks in Fama and French (1993).

On the Construction of Common Size, Value and Momentum Factors in International Stock Markets: A Guide with Applications by Schmidt et al discusses this in section 3.2 on page 12.

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.