A Critique of Size-Related Anomalies
This article argues that the size-related regularities in asset prices should not be regarded as anomalies. Indeed, the opposite result is demonstrated. Namely, a truly anomalous regularity would be if an inverse relation between size and return was not observed. We show theoretically (1) that the size-related regularities should be observed in the economy and (2) why size will in general explain the part of the cross-section of expected returns left unexplained by an incorrectly specified asset pricing model. In light of these results we argue that size-related measures should be used in cross-sectional tests to detect model misspecifications. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
Volume (Year): 8 (1995)
Issue (Month): 2 ()
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