Explanation:
In the Fama-French three-factor model, the size factor is represented by SMB (Small Minus Big), and the value factor is represented by HML (High Minus Low).
A positive SMB coefficient (0.18) means the portfolio is positively correlated with the size factor, indicating it behaves more like small-cap stocks, not large-cap stocks. So Options A and C are incorrect.
A negative HML coefficient (-0.70) means the portfolio is negatively correlated with the value factor (High Minus Low book-to-market). This indicates the portfolio moves inversely to value stocks and therefore moves together with "Low" book-to-market stocks, which are growth stocks. Thus, Option D correctly describes this relationship.
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| Alpha | 0.10 |
|---|---|
| Market coefficient | 0.52 |
| SMB coefficient | 0.18 |
| HML coefficient | -0.70 |
Assuming all estimated coefficients are statistically significant, which of the following is correct?
A
There is a positive correlation between portfolio return and the size factor, which indicates that the portfolio moves together with large-cap stocks.
B
There is a positive correlation between portfolio return and the value factor, which indicates that the portfolio moves together with growth stocks.
C
There is a negative correlation between portfolio return and the size factor, which indicates that the portfolio moves together with large-cap stocks.
D
There is a negative correlation between portfolio return and the value factor, which indicates that the portfolio moves together with growth stocks.
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