THE SIZE EFFECT IS PRIMARILY A PRICE EFFECT

Previous research shows that stock returns are related to firm market value and earnings yield. This study decomposes the measurements of market value and earnings yield into separate components (share price and shares outstanding for market value, earnings per share and share price for earnings yield) and examines the relationship between stock return and these components. Share price represents approximately three-fourths of the relationship between stock returns and either market value or earnings yield. Potential causes for this phenomenon are advanced.