A Critique of Size Related Anomalies

Posted: 25 Dec 1998

See all articles by Jonathan Berk

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)


This paper argues that the size related regularities in asset prices should not be regarded as anomalies. Indeed, the opposite result is demonstrated. Namely, a truly anomalous regularity would be if any inverse relation between size and return was not observed. We show theoretically (1) that the size related regularities should be observed in the economy and (2) why size will in general explain the part of the cross-section of expected returns left unexplained by an incorrectly specified asset pricing model. In light of these results we argue that size related measures should be used in cross-sectional tests to detect model misspecifications.

JEL Classification: G12

Suggested Citation

Berk, Jonathan B., A Critique of Size Related Anomalies. REVIEW OF FINANCIAL STUDIES, Vol 8 No 2. Available at SSRN: https://ssrn.com/abstract=6176

Jonathan B. Berk (Contact Author)

Stanford Graduate School of Business ( email )

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