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Size-related premiums

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This paper theoretically links the stock characteristics size and value to risks. The size premium arises – and spans the value premium – exclusively for portfolios formed in high market price of risk states. This is when the cross-sectional differences in risk premiums dominate the differences in expected cash flows connecting size and risk. Otherwise, value links better to the same risks, as it scales size by a proxy for expected cash flows. The hypothesis that value and size are (constant) risk proxies is formally rejected in the data, challenging the use of size-related portfolios as risk factors along with several strands of the literature based on this hypothesis.

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  • Souza, Thiago de Oliveira, 2018. "Size-related premiums," Discussion Papers on Economics 3/2018, University of Southern Denmark, Department of Economics.
    • Handle: RePEc:hhs:sdueko:2018_003
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    Cited by:

    1. de Oliveira Souza, Thiago, 2019. "A critique of momentum anomalies," Discussion Papers on Economics 5/2019, University of Southern Denmark, Department of Economics.

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    More about this item

    Keywords

    Size premium; Value premium; Risk; Conditional; Portfolio sorts;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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