Australian Evidence on the Implementation of the Size and Value Premia

25 Pages Posted: 4 May 2013

See all articles by Paul Docherty

Paul Docherty

Monash University

H. Chan

University of Melbourne - Department of Finance; Monash University - Department of Accounting

Steve Easton

University of Newcastle (Australia) - Newcastle Business School

Date Written: June 2013

Abstract

This study investigates whether passive investment managers can exploit the size and value premia without incurring prohibitive transaction costs or being exposed to substantial tracking error risk. Returns on the value premium are shown to be pervasive across size groups, while the size premium is nonlinear and driven by microcaps. The value premium cannot be explained by the capital asset pricing model; however, returns on value portfolios do covary across monetary regimes. The substantial turnover required to achieve annual rebalancing and the relative illiquidity of Australian small‐cap firms means that investing in a portfolio of large‐cap value firms appears to be the best way for passive fund managers to exploit the Fama and French (1993) premia.

Keywords: Size, Value, Risk, Liquidity

JEL Classification: G11, G12

Suggested Citation

Docherty, Paul and Chan, Howard and Easton, Steve, Australian Evidence on the Implementation of the Size and Value Premia (June 2013). Accounting & Finance, Vol. 53, Issue 2, pp. 367-391, 2013. Available at SSRN: https://ssrn.com/abstract=2260629 or http://dx.doi.org/10.1111/j.1467-629X.2011.00464.x

Paul Docherty (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Howard Chan

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Monash University - Department of Accounting ( email )

Building 11E
Clayton, Victoria 3800
Australia

Steve Easton

University of Newcastle (Australia) - Newcastle Business School

City Campus East – 231
Newcastle-Upon-Tyne NE1 8ST, NE1 8ST
Australia

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