Size matters, if you control your junk

By Clifford S. Asness, Andrea Frazzini, Ronen Israel, Tobias J. Moskowitz, Lasse Heje Pedersen. Journal of Financial Economics, 2018

163 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/00c719c3a6c20bc17d945e7d1799566ac972b648

Citations in the corpus

• Dissecting Characteristics Nonparametrically (2020, unknown): “Interestingly, the size effect seems largest during the end of our sample period, contrary to conventional wisdom (see Asness et al. (2015) for a related finding).”
• A Transaction-Cost Perspective on the Multitude of Firm Characteristics (2020, unknown): “…it helps to diversify the characteristic portfolio, the magnitude of this diversification benefit is not sufficiently large to make it significant, consistent with the findings in the existing literature; see, for example, the discussion in Asness, Frazzini, Israel, Moskowitz, and Pedersen (2015).”