Settling the Size Matter

18 Pages Posted: 9 Sep 2020

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

Matthias X. Hanauer

Technische Universität München (TUM); Robeco Asset Management

Date Written: September 4, 2020


The size premium has failed to materialize since its discovery almost forty years ago, but is seemingly revived when controlling for quality-versus-junk exposures. This paper aims to resolve whether there exists a distinct size premium that can be captured in reality. For the US we confirm that a highly significant alpha emerges in regressions of size on quality, but for international markets we find that the size premium remains statistically indistinguishable from zero. Moreover, the US size premium appears to be beyond the practical reach of investors, because the alpha that is observed ex post in regressions cannot be captured by controlling for quality exposures ex ante. We also find that the significant regression alpha in the US is entirely driven by the short side of quality. Altogether, these results imply that size only adds value in conjunction with a short position in US junk stocks. However, we also show that small-cap exposure is vital for unlocking the full potential of other factors, such as value and momentum. We conclude that size is weak as a stand-alone factor but a powerful catalyst for other factors.

Suggested Citation

Blitz, David and Hanauer, Matthias Xaver, Settling the Size Matter (September 4, 2020). Available at SSRN: or

David Blitz (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA

Matthias Xaver Hanauer

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290


Robeco Asset Management ( email )

Weena 850
Rotterdam, 3014 DA


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