Three analyses of the firm size premium |
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| Institution: | 1. Department of Commerce, School of Management, Pondicherry University, Pondicherry 605014, India;2. Department of Commerce, School of Management, Pondicherry University, Pondicherry 605014, India;1. Institute for Financial and Accounting Studies, Xiamen University, China;2. Business School, University of Adelaide, Australia;3. School of Business, Monash University, Malaysia |
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| Abstract: | The size premium for smaller companies is one of the best-known academic market anomalies. The relevant issue for investors is whether size premium for small-cap stocks is still positive, and, if so, whether its magnitude is substantial. In our analysis, we use annual compounded returns, monthly cross-sectional regressions, and linear spline regressions to investigate the relation between expected returns and firm size during 1980–1996. All three methodologies report no consistent relationship between size and realized returns. Hence, our results show that the widespread use of size in asset pricing is unwarranted. |
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