Three analyses of the firm size premium

Joel L. Horowitz; Tim Loughran; N. E. Savin

doi:10.1016/S0927-5398(00)00008-6

Three analyses of the firm size premium

Joel L. Horowitz^*, Tim Loughran, N. E. Savin

^*Corresponding author for this work

Economics

Research output: Contribution to journal › Article › peer-review

71 Scopus citations

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.

Original language	English (US)
Pages (from-to)	143-153
Number of pages	11
Journal	Journal of Empirical Finance
Volume	7
Issue number	2
DOIs	https://doi.org/10.1016/S0927-5398(00)00008-6
State	Published - Aug 2000

Keywords

Asset pricing
G12
G14
Size premia
Spline regressions

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/S0927-5398(00)00008-6

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title = "Three analyses of the firm size premium",

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.",

keywords = "Asset pricing, G12, G14, Size premia, Spline regressions",

author = "Horowitz, {Joel L.} and Tim Loughran and Savin, {N. E.}",

note = "Funding Information: We would like to thank Utpal Bhattacharya, Franz Palm, Michael Stutzer, and two anonymous referees. The research of Joel L. Horowitz was supported in part by NSF grant SBR 9617925. ",

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AU - Horowitz, Joel L.

AU - Loughran, Tim

AU - Savin, N. E.

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PY - 2000/8

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N2 - 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.

AB - 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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KW - G14

KW - Size premia

KW - Spline regressions

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Three analyses of the firm size premium

Abstract

Keywords

ASJC Scopus subject areas

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