Value and Momentum Confirmed

A worthwhile new read at

What are the Academic Insights?

The authors find:

  1. In line with Black, Jensen and Scholes, and Fama-MacBeth we find that market beta is not priced in the cross-section, and the CAPM, on average fails to explain asset prices: low-beta stocks have positive alpha and high-beta stocks have negative alpha over the 1866-1926 sample
  2. Size has no significant slope in Fama-MacBeth regression and no significant return spread in portfolio sorts
  3. Short-term reversal is only significant in Fama-MacBeth regression tests
  4. Price momentum and dividend yield carry significant cross-sectional premiums or return spreads
  5. Combined, the six stock characteristics can explain 28% of the variation in stock returns

Why does it matter?

This study serves two main contributions: 1) the creation of a novel database covering 61-years including the major stocks traded on the U.S. exchanges during the second half of the 19th and early 20th century; 2) the examination of the cross-section of stock returns out-of-sample in a robust and rigorous way. Overall, findings on stock factors are largely similar over the pre-1926 and post-1926 era’s.

Then look through the most important chart.

Enjoy - FC