The Role of Shorting, Firm Size, and Time on Market Anomalies

49 Pages Posted: 23 Jun 2012  

Ronen Israel

AQR Capital Management, LLC

Tobias J. Moskowitz

AQR Capital; University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: May 1, 2012

Abstract

We examine the role of shorting, firm size, and time on the profitability of size, value, and momentum strategies. We find that long positions comprise almost all of size, 60% of value, and half of momentum profits. Shorting becomes less important for momentum and more important for value as firm size decreases. The value premium decreases with firm size and is weak among the largest stocks. Momentum profits, however, exhibit no reliable relation with size. These effects are robust over 86 years of U.S. equity data and almost 40 years of data across four international equity markets and five asset classes. Variation over time and across markets of these effects is consistent with random chance. We find little evidence that size, value, and momentum returns are significantly affected by changes in trading costs or institutional and hedge fund ownership over time.

Suggested Citation

Israel, Ronen and Moskowitz, Tobias J., The Role of Shorting, Firm Size, and Time on Market Anomalies (May 1, 2012). Chicago Booth Research Paper No. 12-22; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2089466 or http://dx.doi.org/10.2139/ssrn.2089466

Ronen Israel

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Tobias J. Moskowitz (Contact Author)

AQR Capital ( email )

Greenwich, CT
United States

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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