How is RMW calculated?

RMW (Robust Minus Weak) is the average return on the two robust operating profitability portfolios minus the average return on the two weak operating profitability portfolios, RMW = 1/2 (Small Robust + Big Robust) – 1/2 (Small Weak + Big Weak).

What is robust minus weak factor?

Robust minus Weak (RMW) accounts for the difference in returns between the firms with robust and weak profitability.

How is HML calculated?

HML (High Minus Low) = Historic excess returns of value stocks (high book-to-price ratio) over growth stocks (low book-to-price ratio) ↋ = Risk.

What is the RMW factor?

Defined analogously to the HML factor, the profitability factor (RMW) is the difference between the returns of firms with robust (high) and weak (low) operating profitability; and the investment factor (CMA) is the difference between the returns of firms that invest conservatively and firms that invest aggressively.

What does a negative RMW mean?

Conversely, negative RMW and CMA exposures help explain the low average returns of portfolios comprised of stocks with high market beta, large share offerings and high volatility (indicating unprofitable firms that invest aggressively) .

What is RMW Fama French?

Abstract. Fama and French’s (2015) RMW (robust-minus-weak) profitability factor is likely to attract debate on whether it captures a behavioral mispricing or a rationally-priced risk.

How do you construct SMB and HML?

To construct the SMB and HML factors, we sort stocks in a region into two market cap and three book-to-market equity (B/M) groups at the end of each June. Big stocks are those in the top 90\% of June market cap for the region, and small stocks are those in the bottom 10\%.

How is momentum factor calculated?

The Monthly Momentum Factor(MOM) can be calculated by subtracting the equal weighted average of the lowest performing firms from the equal weighed average of the highest performing firms, lagged one month (Carhart, 1997). Momentum strategies continue to be popular in financial markets.

What is RMW finance?

What does negative SMB mean?

Small minus big
Key Takeaways. Small minus big (SMB) is a factor in the Fama/French stock pricing model that says smaller companies outperform larger ones over the long-term. High minus low (HML) is another factor in the model that says value stocks tend to outperform growth stocks.

What are three basic factors involved in Fama and French Three Factor?

The Fama and French model has three factors: the size of firms, book-to-market values, and excess return on the market. In other words, the three factors used are SMB (small minus big), HML (high minus low), and the portfolio’s return less the risk-free rate of return.