Size Premium Waves

29 Pages Posted: 13 Aug 2018 Last revised: 3 Oct 2018

See all articles by Bernard Herskovic

Bernard Herskovic

University of California, Los Angeles (UCLA) - Anderson School of Management

Thilo Kind

London Business School

Howard Kung

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: May 1, 2018

Abstract

This paper examines the link between microeconomic uncertainty and the size premium across different frequencies in an investment model with heterogeneous firms. We document that the observed time-varying dispersion in firm-specific productivity can account for a large size premium in the 1960's and 1970's, the disappearance in the 1980's and 1990's, and reemergence in the 2000's. Periods with a large (small) size premium coincide with high (low) microeconomic uncertainty. During episodes of high productivity dispersion, small firms increase their exposure to macroeconomic risks. Our model can also explain the strong positive low-frequency co-movement between size and value factors, but a negative relation with the market factor.

Suggested Citation

Herskovic, Bernard and Kind, Thilo and Kung, Howard, Size Premium Waves (May 1, 2018). Available at SSRN: https://ssrn.com/abstract=3220825 or http://dx.doi.org/10.2139/ssrn.3220825

Bernard Herskovic

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

Los Angeles, CA 90095-1481
United States

HOME PAGE: http://bernardherskovic.com

Thilo Kind

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Howard Kung (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
144
rank
190,681
Abstract Views
481
PlumX Metrics