Long-Only Value Investing: Does Size Matter?

Abstract

The academic value factor (long cheap stocks, short expensive stocks) earns higher returns among small-cap stocks. However, when viewed through the lens of a long-only value investor, size is a less important factor. For example, equal-weight large-cap value portfolios historically earned similar returns as small-cap value portfolios. This finding is robust to different value measures and markets. Despite realized returns being statistically similar, the liquidity profile of the two value portfolios is dramatically different: Equal-weight large-cap value portfolios have approximately eleven times (or more) the liquidity of small-cap value portfolios.

Keywords: Value investing, size investing, value anomaly

JEL Classification: G10, G11, G14