I am studying book 1, CAPM, APT and Fama French three factor model. Under HML (High Minus Low), it is suggested that portfolio manager would hedge Long on High Book to Market ratio and Short on Low Book to Market ratio. My question is why?
assume if the book price of Apple is $10 and Market price is $100 then Book to Market ratio is = 0.1
and assume book price of Yahoo is $10 and Market price is $20 then Book to Market ratio is = 0.2
Why Portfolio manager will do long on Yahoo (High BML) and Short on Apple(low BML)?
I might be missing something. Can someone elaborate with example?
assume if the book price of Apple is $10 and Market price is $100 then Book to Market ratio is = 0.1
and assume book price of Yahoo is $10 and Market price is $20 then Book to Market ratio is = 0.2
Why Portfolio manager will do long on Yahoo (High BML) and Short on Apple(low BML)?
I might be missing something. Can someone elaborate with example?
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