Liew and Vassalou (2000) show that returns on style portfolios (SMB and HML)
A)seem like statistical flukes.
B)seem to predict GDP growth.
C)may be proxies for business cycle risk.
D)seem to predict GDP growth and may be proxies for business cycle risk.

Question

Quizplus · Accepted Answer

Liew and Vassalou (2000) found that returns on style portfolios, specifically SMB (Small Minus Big, which refers to the size effect) and HML (High Minus Low, which refers to the value effect), are not only predictive of GDP growth but may also serve as proxies for business cycle risk. This suggests that these factors capture economic risks that are relevant for predicting the business cycle, thereby providing a link between financial markets and the overall economy.

Liew and Vassalou (2000) Show That Returns on Style Portfolios