Is the Value Premium Smaller Than We Thought?

The construction of the original HML portfolio (Fama and French, 1993) includes six seemingly innocuous decisions that could easily have been replaced with alternatives that are just as reasonable. I propose such alternatives and construct HML portfolios. In sample, the average of these alternative estimates of the value premium is smaller than the original estimate of the value premium. The difference is 0.08% per month and statistically significant. Out of sample, however, this difference is statistically indistinguishable from zero. The results suggest that the original value premium estimate is upward biased because of a potential chance result in the original research decisions.