Value and Size Puzzles: A Commented Survey

33 Pages Posted: 27 Feb 2011

See all articles by Kateryna Shapovalova

Kateryna Shapovalova

Université Paris I Panthéon-Sorbonne; Paris School of Economics (PSE)

Alexander Subbotin

Renaissance Finance

Date Written: February 26, 2011


Stocks with low market price relatively to the accounting fundamentals of the issuing company (value stocks) have higher expected returns than those with high market price (growth stocks) for the same level of systematic risk. The same holds for the stocks of small companies, compared to relatively big ones. These empirical findings, known respectively as the value puzzle and the size puzzle, have been among the central topics of the asset pricing literature since the early 1990s. We review the theoretical and empirical literature on the value and size premia over the last two decades, comparing and commenting on the competing explanations of the asset pricing puzzles. Though the risk-based explanations seem to dominate, at least in the volume of recent academic publications, the final word is still to be said since numerous shortcomings of the empirical tests used to support them raise doubts in their validity. We suggest several directions of further research, motivated by our analysis.

Keywords: Stock Returns, Asset Pricing, Value Puzzle, Three-Factor Model, Company Fundamentals

JEL Classification: G10, G14

Suggested Citation

Shapovalova, Kateryna and Subbotin, Alexander, Value and Size Puzzles: A Commented Survey (February 26, 2011). Available at SSRN: or

Kateryna Shapovalova (Contact Author)

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014

Alexander Subbotin

Renaissance Finance ( email )

9, chemin Pierre de Ronsard
Courbevoie, 92400