When a small subset of companies makes up a large portion of a portfolio, for better or worse their returns will have a greater impact on overall portfolio results.
Given that tightening monetary policy increases economic risks, Simpson and Grossman provided compelling evidence of a risk explanation for the size factor. For those investors who engage in tactical asset allocation strategies (market timing), their evidence suggests that it might be possible to exploit the information. Before jumping to that conclusion, I would caution that because markets are forward-looking, they should anticipate periods of Fed tightening and the heightened risks of small stocks.
How well do quantitative investors navigate around the changes to the accounting standards that are endemic to the financial data used in quantitative strategies? The numbers reported on financial statements are wholly governed by regulation and by each firm’s interpretation of those accounting standards. So how do quants stick to their empirical evidence on old data methods or do they react in terms of the strategy when the change in standards is material?
Using data on 65,000 stocks from 23 countries, they evaluated the performance of the Fama-French factors, examining the factor premia in global markets to verify their robustness across different company size categories and geographical regions. Their data sample covered the period 1987-2019.
In his famous 1981 paper, "The Relationship Between Return and Market Value of Common Stocks,” Rolf Banz found that small firms have higher risk-adjusted returns [...]
The lack of a statistically significant size premium in the U.S. since the publication of Rolf Banz’s 1981 paper, “The Relationship Between Return and Market [...]
In my role as chief research officer for the Buckingham Family of Financial Services, I receive many questions from investors and advisors alike, asking me [...]
From 2017 through 2019, the Russell 1000 Growth Index returned 20.5 percent per annum, outperforming the Russell 1000 Value Index, which returned 9.7 percent, by [...]
The Size Premium in Equity Markets: Where Is the Risk? Stefano Ciliberti, Emmanuel Sérié, Guillaume Simon, Yves Lempérière, and Jean-Philippe BouchaudJournal of Portfolio ManagementA version [...]
Fact, Fiction and the Size Effect Ron Alquist, Ronen Israel, And Tobias MoskowitzJournal of Portfolio Management, 2018A version of this paper can be found hereWant to [...]
Factor Investing from Concept to Implementation Eduard van Gelderen, Joop Huij, and Georgi KyosevWorking paperA version of this paper can be found here[ref]hat tip to Art [...]
Volatility Lessons Eugene F. Fama and Kenneth R. French Financial Analysts Journal A version of this paper can be found here Want to read our summaries [...]
Fama–French in China: Size and Value Factors in Chinese Stock Returns Grace Xing Hu, Can Chen, Yuan Shao, and Jiang Wang International Review of Finance [...]
Regression analysis is used all the time to assess how a portfolio "loads" on certain factors. The most common factor loadings examined are the market, [...]
The Oracle of Omaha just commented on the Chinese stock market in this year's Berkshire's annual meeting: ...Markets have a casino characteristic that has a [...]