Small Minus Big - SMB

AAA

DEFINITION of 'Small Minus Big - SMB'

One of three factors in the Fama and French stock pricing model. SMB accounts for the spread in returns between small- and large-sized firms, which is based on the company's market capitalization.

This factor is referred to as the "small firm effect", as smaller firms tend to outperform large ones.

INVESTOPEDIA EXPLAINS 'Small Minus Big - SMB'

Fama and French's Three Factor model is a way to evaluate a portfolio manager's returns. A typical measure of good performance is large excess returns. The model's three factors, including SMB, attempt to explain excess returns made by a manager's portfolio. Incorporating SMB shows whether management was relying on the small firm effect (investing in stocks with low market capitalization) to earn an abnormal return. If the manager was buying only small-cap stocks, then his excess return would be diminished compared to if high yielding large stocks were also selected.

RELATED TERMS
  1. Small Firm Effect

    A theory that holds that smaller firms, or those companies with ...
  2. Small Cap

    Refers to stocks with a relatively small market capitalization. ...
  3. Large Cap - Big Cap

    A term used by the investment community to refer to companies ...
  4. Structural Change

    An economic condition that occurs when an industry or market ...
  5. Fama And French Three Factor Model

    A factor model that expands on the capital asset pricing model ...
  6. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
Related Articles
  1. Bonds & Fixed Income

    Achieving Better Returns In Your Portfolio

    We look at three risk factors that best explain the bulk of equity performance.
  2. Markets

    Understanding Small- And Big-Cap Stocks

    If you don't realize how big small-cap stocks can be, you'll miss some good investment opportunities.
  3. Insurance

    Market Capitalization Defined

    Find out the differences between mega-, large-, mid- and small-cap stocks and how each suits different investing styles.
  4. Markets

    An Introduction To Small Cap Stocks

    When it comes to a company's size, bigger isn't always better for investors. Find out more here.
  5. Charts & Patterns

    Why These Are 2015's Most-Promising Bank Stocks

    Which bank stocks should offer the best bang for your buck in 2015? Possibly these, so read on.
  6. Fundamental Analysis

    Interested In Pharmaceutical Stocks? Try Novartis (ADR)

    Novartis AG, is the world's leading pharmaceutical company by sales. Here is a closer look at Novartis, and how its financials stack up.
  7. Charts & Patterns

    Are These the 10 Best Oil Stocks of 2015?

    Instead of trying to pick a bottom in oil, pick a good company. Here are 10 to consider.
  8. Fundamental Analysis

    Equity Multiplier

    The equity multiplier is a straightforward ratio used to measure a company’s financial leverage. The ratio is calculated by dividing total assets by total equity.
  9. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  10. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center