West Loop Financial LLCBook To Market & Size Premium – West Loop Financial LLC https://www.westloopfinancial.com Evolutionize Site Wed, 19 Aug 2020 20:50:49 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.22 Book To Market & Size Premium https://www.westloopfinancial.com/2014/12/22/book-market-size-premium/ https://www.westloopfinancial.com/2014/12/22/book-market-size-premium/#respond Mon, 22 Dec 2014 09:00:42 +0000 http://evolvemypractice.com/?p=1546 Since the 1992 publication of “The Cross-Section of Expected Stock Returns” by Eugene Fama and Ken French, the size factor has been among those used in asset pricing models that attempt to explain the differences in returns of diversified portfolios. While Fama and French limited their model to three factors (beta, size and value), asset...

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]]> Since the 1992 publication of “The Cross-Section of Expected Stock Returns” by Eugene Fama and Ken French, the size factor has been among those used in asset pricing models that attempt to explain the differences in returns of diversified portfolios.

While Fama and French limited their model to three factors (beta, size and value), asset pricing models since 1998 typically have included momentum as a fourth factor. In the last few years, we have seen profitability (or quality or investment) added as a fifth factor.

Recently, the size premium has been called into question, because during the last 30 years (1984-2013), the annual size premium has been just 0.9 percent. In the 57 years prior to that (1927-1983), it had been 4.2 percent.

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