TY - JOUR
T1 - Size Matters, if You Control Your Junk
AU - Asness, Clifford S.
AU - Frazzini, Andrea
AU - Israel, Ronen
AU - Moskowitz, Tobias J.
AU - Pedersen, Lasse Heje
PY - 2018/9
Y1 - 2018/9
N2 - The size premium has been accused of having a weak historical record, being meager relative to other factors, varying significantly over time, weakening after its discovery, being concentrated among microcap stocks, residing predominantly in January, relying on price-based measures, and being weak internationally. We find, however, that these challenges disappear when controlling for the quality, or its inverse, junk, of a firm. A significant size premium emerges, which is stable through time, robust to specification, not concentrated in microcaps, more consistent across seasons, and evident for non-price-based measures of size, and these results hold in 30 different industries and 24 international equity markets. The resurrected size effect is on par with anomalies such as value and momentum in terms of economic significance and gives rise to new tests of, and challenges for, existing asset pricing theories.
AB - The size premium has been accused of having a weak historical record, being meager relative to other factors, varying significantly over time, weakening after its discovery, being concentrated among microcap stocks, residing predominantly in January, relying on price-based measures, and being weak internationally. We find, however, that these challenges disappear when controlling for the quality, or its inverse, junk, of a firm. A significant size premium emerges, which is stable through time, robust to specification, not concentrated in microcaps, more consistent across seasons, and evident for non-price-based measures of size, and these results hold in 30 different industries and 24 international equity markets. The resurrected size effect is on par with anomalies such as value and momentum in terms of economic significance and gives rise to new tests of, and challenges for, existing asset pricing theories.
KW - Size premium
KW - Factor models
KW - Quality
KW - Size premium
KW - Factor models
KW - Quality
U2 - 10.1016/j.jfineco.2018.05.006
DO - 10.1016/j.jfineco.2018.05.006
M3 - Journal article
SN - 0304-405X
VL - 129
SP - 479
EP - 509
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 3
ER -