Is the Size Premium Really Driven by Firm Size

41 Pages Posted: 17 Jan 2017 Last revised: 16 Sep 2018

See all articles by Zhiyao Chen

Zhiyao Chen

The Chinese University of Hong Kong (CUHK) - Department of Finance

Jun Li

University of Texas at Dallas

Huijun Wang

University of Delaware

Date Written: September 1, 2018

Abstract

Not really. Decomposing firm size into horizon-based components, we find that size five years ago explains 80% of the current size but has little predictive power for the return. In contrast, the change in size over the prior two to five years explains only 18% of the size but completely captures the size premium. Our decomposition suggests that illiquidity and exposures to cash flow news and variance news are likely to be the economic drivers of the size premium. Our analyses provide new insights into the disappearance of the size premium, the January effect, and the behavior of new entrants.

Keywords: Firm Size, Size Premium, Decomposition

JEL Classification: G12

Suggested Citation

Chen, Zhiyao and Li, Jun and Wang, Huijun, Is the Size Premium Really Driven by Firm Size (September 1, 2018). Available at SSRN: https://ssrn.com/abstract=2899944 or http://dx.doi.org/10.2139/ssrn.2899944

Zhiyao Chen

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

Jun Li (Contact Author)

University of Texas at Dallas ( email )

800 West Campbell Road, SM 31
Richardson, TX 75080
United States
972-883-4422 (Phone)

Huijun Wang

University of Delaware ( email )

B & E Finance, UD
306 Purnell Hall
NEWARK, DE Delaware 19716
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
217
rank
137,519
Abstract Views
1,779
PlumX Metrics