Zombie Portfolios & Disinfected Factors

DATA - 2 x 3 Zombie Portfolios

• At June each year, I form a portfolio of Zombie firms, defined as non-financial US firms with high book-to-market ratios that appear for more than 10 years in the CRSP tapes and report the interest coverage ratio below one for past three consecutive years.
• Then, above (below) median NYSE market Cap firms are allocated to Small and Big,
• Firms at top (bottom) 30% of the Book-to-Market deciles are assigned to High (Low) , and the middle 40% percent represents Medium.
• I hold zombie firms in the portfolio until July next year when the portfolios are reformed.
• The file contains the number of firms in each portfolios and each portfolio's excess return.

DATA -Disinfected Factors

Fama and French Small-minus-Big (SMB) portfolio excluding Zombie firms (July 1963, Dec 2018 )

• The disinfected SMB factor earns , on average, 65 BPS (t-stat, 3.36) monthly abnormal returns (FF 5 factors +Momentum).

Fama and French High-minus-Low (HML) portfolio excluding Zombie firms (July 1963, Dec 2018 )

• The disinfected HML factor earns , on average, -65 BPS (t-stat, -2.56) monthly abnormal returns (FF 5 factors +Momentum).