Fact, Fiction, and the Size Effect

ArXiv ID: ssrn-3177539 “View on arXiv”

Authors: Unknown

Abstract

In the earliest days of empirical work in academic finance, the size effect was the first market anomaly to challenge the standard asset pricing model and promp

Keywords: Size Effect, Asset Pricing, Market Anomalies, Equity Valuation, Small Cap Stocks, Equities

Complexity vs Empirical Score

• Math Complexity: 2.5/10
• Empirical Rigor: 8.0/10
• Quadrant: Street Traders
• Why: The paper primarily uses standard statistical tests on public datasets (like CRSP) and factor return data (Fama-French) to empirically dissect the size effect, with minimal advanced mathematical formalism beyond basic regression and performance metrics.

  flowchart TD
    A["Research Goal: Investigate the existence<br>and persistence of the Size Effect"] --> B["Data Inputs: Historical equity data,<br>CRSP database, Fama-French factors"]
    B --> C["Methodology: Portfolio Sorts<br>& Regression Analysis"]
    C --> D{"Computational Process:<br>Decomposing Size Premium"}
    D -- "Statistical Testing" --> E["Key Findings: Size Effect is<br>conditional on volatility & liquidity"]
    D -- "Out-of-Sample Validation" --> E
    E --> F["Outcome: Small-cap premium<br>diminishes after accounting for<br>risk factors & data snooping"]