Size Effect

Capital Asset Pricing Model with Size Factor and Normalizing by Volatility Index ArXiv ID: 2411.19444 “View on arXiv” Authors: Unknown Abstract The Capital Asset Pricing Model (CAPM) relates a well-diversified stock portfolio to a benchmark portfolio. We insert size effect in CAPM, capturing the observation that small stocks have higher risk and return than large stocks, on average. Dividing stock index returns by the Volatility Index makes them independent and normal. In this article, we combine these ideas to create a new discrete-time model, which includes volatility, relative size, and CAPM. We fit this model using real-world data, prove the long-term stability, and connect this research to Stochastic Portfolio Theory. We fill important gaps in our previous article on CAPM with the size factor. ...

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"]

A Literature Review of the Size Effect ArXiv ID: ssrn-1710076 “View on arXiv” Authors: Unknown Abstract The size effect in finance literature refers to the observation that smaller firms have higher returns than larger firms, on average over long horizons. It also Keywords: Size effect, Small-cap premium, Asset pricing, Equity returns, Fama-French factors, Equities Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 3.0/10 Quadrant: Philosophers Why: The paper is a literature review summarizing existing findings with minimal original mathematical derivations or models, and while it discusses empirical results, it does not present new backtests, datasets, or implementation-heavy analysis. flowchart TD A["Research Goal<br>How does firm size impact equity returns?"] --> B["Methodology<br>Literature Review & Empirical Analysis"] B --> C["Data Sources<br>CRSP, Compustat, Fama-French Datasets"] C --> D["Computational Processes<br>Portfolio Sorts, Regression Analysis, Factor Models"] D --> E["Key Findings<br>Size Effect Exists but Varies by Market & Period"] E --> F["Outcomes<br>Small-Cap Premium Often Captured by HML Factor or Disappears in Large Caps"]