publication . Article . Other literature type . 1995

A Critique of Size-Related Anomalies

Jonathan B. Berk;
Open Access
  • Published: 01 Apr 1995 Journal: Review of Financial Studies, volume 8, pages 275-286 (issn: 0893-9454, eissn: 1465-7368, Copyright policy)
  • Publisher: Oxford University Press (OUP)
Abstract
This article 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 an 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. Article published...
Persistent Identifiers
Subjects
free text keywords: Capital asset pricing model, Size premium, Arbitrage pricing theory, Consumption-based capital asset pricing model, Economics, Financial economics
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