High minus low (HML),
Definition of High minus low (HML):
High Minus Low (HML), also referred to as the value premium, is one of three factors used in the Fama-French three-factor model. HML accounts for the spread in returns between value stocks and growth stocks and argues that companies with high book-to-market ratios, also known as value stocks, outperform those with lower book-to-market values, known as growth stocks.
This method evaluates the short- and long-term profit margins for a stock or bond to determine how well the stock or bond will perform in the future.
To understand HML, it is important to first have a basic understanding of the Fama-French three-factor model. Founded in 1992 by Eugene Fama and Kenneth French, the Fama-French three-factor model uses three factors, one of which is HML, in order to explain the excess returns in a manager’s portfolio.
How to use High minus low (HML) in a sentence?
- HML refers to the outperformance of value stocks over growth stocks.
- High Minus Low (HML) is a component of the Fama-French three-factor model.
- Along with another factor, Small Minus Big (SMB), HML is used to estimate portfolio managers’ excess returns.
Meaning of High minus low (HML) & High minus low (HML) Definition