Hi Maria,
When you invest 0.71 in the HML factor, it means that you are going long 0.71 in value stocks (high book-to-market) and short 0.71 in growth stocks (low book-to-market). Since both HML and SMB involve simultaneous long and short positions of equal size, they do not require additional financing, they are entirely self-financing.
The remaining investments (the stock, market, and risk-free) must sum 0. Given that the stock position is +1 and the market position is -0.91, the risk-free position must be adjusted to balance the equation (0.09).
Hopefully it makes more sense now!
Diogo
When you invest 0.71 in the HML factor, it means that you are going long 0.71 in value stocks (high book-to-market) and short 0.71 in growth stocks (low book-to-market). Since both HML and SMB involve simultaneous long and short positions of equal size, they do not require additional financing, they are entirely self-financing.
The remaining investments (the stock, market, and risk-free) must sum 0. Given that the stock position is +1 and the market position is -0.91, the risk-free position must be adjusted to balance the equation (0.09).
Hopefully it makes more sense now!
Diogo