On the Robustness of Size and Book-to-Market in Cross- Sectional Regressions

J. OF FINANCE, Vol. 52 No. 4, September 1997

Posted: 30 Jul 1997  

Peter J. Knez

affiliation not provided to SSRN

Mark J. Ready

University of Wisconsin - Madison - Department of Finance, Investment and Banking

Abstract

We use a robust regression estimator to analyze the risk premia on size and book-to-market. We find that the risk premium on size that was estimated by Fama and French (1992) completely disappears when the 1% most extreme observations are trimmed each month. We also show that the negative average of the monthly size coefficients reported by Fama and French can be entirely explained by the 16 months with the most extreme coefficients. We argue that further investigation of these results could lead to an understanding of the economic forces underlying the size effect, and may also yield important insights into how firms grow.

JEL Classification: G12

Suggested Citation

Knez, Peter J. and Ready, Mark J., On the Robustness of Size and Book-to-Market in Cross- Sectional Regressions. J. OF FINANCE, Vol. 52 No. 4, September 1997. Available at SSRN: https://ssrn.com/abstract=8450

Peter J. Knez

affiliation not provided to SSRN

Mark J. Ready (Contact Author)

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-262-5226 (Phone)
608-263-0477 (Fax)

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