The Size Premium: What Role Does Macroeconomic Risk Play?
39 Pages Posted: 8 Dec 2011 Last revised: 15 Oct 2013
Date Written: April 13, 2013
Abstract
The size effect is alive well but visible only when the economy is in a high volatility regime. This result is robust across different sample periods and model specifications. Independent business cycle and volatility regimes are identified from bivariate regime switching models of the industrial production growth and the small firm premium (SMB). The SMB factor is not priced by the market excess return (RMRF) and the value premium (HML) in the high volatility regime rather than in a recession regime. This new result is not explained by the January effect. An economic story for the size premium is provided through the capital market imperfection hypothesis.
Keywords: The Size Premium, Volatility Regime Switching, Capital Market Imperfections
JEL Classification: E32, E52, G12
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Beta and Returns Revisited: Evidence from the German Stock Market
By Ralf Elsas, Mahmoud El-shaer, ...
-
Common Risk Factors in International Stock Markets
By Peter Steffen Schmidt, Urs Von Arx, ...
-
The Capital Asset Pricing Model: Some Empirical Tests
By Michael C. Jensen, Fischer Black, ...
-
The Fama-French and Momentum Portfolios and Factors in the UK
By Alan Gregory, Rajesh Tharyan, ...
-
The Cross-Section of German Stock Returns: New Data and New Evidence
By Sabine Artmann, Philipp Finter, ...
-
The Cross-Section of German Stock Returns: New Data and New Evidence
By Sabine Artmann, Philipp Finter, ...
-
Risk Factors for the Swiss Stock Market
By Manuel Ammann and Michael Steiner
-
Default Risk and Equity Returns: A Comparison of the Bank-Based German and the U.S. Financial System
By Christoph M. Breig and Ralf Elsas