Info · Reference
The factor premiums, in numbers
Decades of research found that a handful of measurable traits — a company's size, how cheap it is, how profitable, how it invests — have historically explained differences in stock returns. Each "factor" is the return of buying one side and shorting the other. Here's how much each has paid, on average, and how bumpy it was.
Long-run US averages Core factors (market, size, value, profitability, investment, momentum) from the Kenneth R. French Data Library (US; ≈1963–present, momentum from 1927). Quality (QMJ) and Defensive (Betting-Against-Beta) from AQR; Liquidity from the Pástor–Stambaugh traded series (from 1968). Long-run annualized averages of each factor's long-short spread; every premium is period-dependent — value in particular has had long droughts. · source & method
- 6.6% the market premium — stocks over T-bills, the reward for simply owning the market
- 3.4% the value premium — cheap stocks over expensive ones
- 2.3% the size premium — small companies over large
Every factor
The annualized average premium (extra return) and volatility of each factor. A premium isn't free money — it's compensation for a risk or discomfort that shows up as that volatility, and it can vanish for a decade at a time.
| Factor | Premium Annualized average excess return of the factor's long-short spread. Not a guaranteed future return — a historical average with wide swings. | Volatility | What it is |
|---|---|---|---|
| Market (Mkt−RF) | 6.6% | 15.4% | The whole stock market's return above Treasury bills: the reward for bearing market risk. |
| Size (SMB) | 2.3% | 10.5% | Small companies minus big ones. Small caps have historically earned a bit more. |
| Value (HML) | 3.4% | 10.7% | Cheap 'value' stocks (high book/price) minus expensive 'growth' ones. |
| Profitability (RMW) | 3.3% | 7.6% | Robustly profitable firms minus weakly profitable ones. |
| Investment (CMA) | 3.0% | 6.9% | Conservative firms that reinvest cautiously minus aggressive ones. |
| Momentum (UMD) | 7.5% | 16.2% | Recent winners minus recent losers. Stocks that led over the past year have tended to keep leading — the strongest, and most fragile, of the anomalies. |
| Quality (QMJ) | 3.8% | 7.9% | 'Quality minus junk': profitable, growing, safe, well-run companies minus their opposites (AQR). |
| Defensive (BAB) | 7.8% | 11.2% | 'Betting against beta': low-risk stocks have earned more per unit of risk than high-risk ones — so a leveraged low-beta, short high-beta bet has paid off (AQR). |
| Liquidity (LIQ) | 3.6% | 12.6% | Stocks that are hard to trade when markets seize up have paid extra to compensate — the Pastor–Stambaugh traded liquidity factor. |
How to read a premium
These are historical averages, not promises. Every factor premium is measured over a specific past period and swings enormously year to year — the value premium famously went missing for much of the 2010s. A positive long-run average doesn't guarantee the next decade.
Premiums come with risk, and with cost. Capturing a factor means tilting away from the total market, holding through the lean stretches, and often paying higher fees and taxes to do it. Whether that's worthwhile is a genuine judgment call — this page is the evidence, not a recommendation to tilt.
Sources & method
Annualized factor premia from the Kenneth French Data Library, with quality and defensive from AQR and liquidity from Pástor–Stambaugh.
Research
- Fama, E. F., & French, K. R. (1992). “The Cross-Section of Expected Stock Returns.” The Journal of Finance 47(2): 427–465.
- Fama, E. F., & French, K. R. (1993). “Common Risk Factors in the Returns on Stocks and Bonds.” Journal of Financial Economics 33(1): 3–56. The three-factor model.
- Fama, E. F., & French, K. R. (2015). “A Five-Factor Asset Pricing Model.” Journal of Financial Economics 116(1): 1–22.
- Carhart, M. M. (1997). “On Persistence in Mutual Fund Performance.” The Journal of Finance 52(1): 57–82. Adds momentum as a fourth factor.
Data
- Kenneth R. French Data Library, Tuck School of Business, Dartmouth College. Data © Eugene F. Fama and Kenneth R. French. The library publishes no formal license; we ship derived series (daily market returns, regional monthly returns, factor summaries) with attribution, not the library's files.
- AQR Factor & Quality-Minus-Junk / Betting-Against-Beta datasets, AQR Capital Management. Datasets 'Quality Minus Junk: Factors, Monthly' and 'Betting Against Beta: Equity Factors Data, Monthly'. AQR's site terms prohibit reproducing or publishing its content without written consent, so the series are not redistributed: only a handful of long-run annualized summary figures (facts about the factors) are quoted here, with attribution to AQR and to the underlying papers.
- Liquidity factor (traded), Ľuboš Pástor & Robert F. Stambaugh. The traded liquidity factor (LIQ_V) of Pástor & Stambaugh (2003), monthly from January 1968, from Ľuboš Pástor's Chicago Booth data page. No usage terms are published; we ship its long-run annualized premium only.
Educational use only, not financial advice. Every figure traces back to the sources above or to the inputs you set — the full method and the source code are public.