Discount Rates, Market Frictions, and the Mystery of the Size Premium

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type , Research , Preprint , Report 01 Jan 2014 Belgium English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: De Oliveira Souza, Thiago;

doi: 10.2139/ssrn.2497309 , 10.2139/ssrn.2496606

handle: 2013/ULB-DIPOT:oai:dipot.ulb.ac.be:2013/152141

Discount Rates, Market Frictions, and the Mystery of the Size Premium

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Abstract

The average year-end size premium is signicant only when the beginning-of-year aggregate (median) book-to-market is high (top 10% to 20% in historical terms). This helps to explain why empirical research based on dierent time periods nds conicting results regarding the existence of the size premium. This transitional dynamics also suggests that market frictions may explain the size premium. The eect is pervasive and it is present in dierent periods in the United States, and in the United Kingdom; considering the Fama/French SMB factor or the individual size portfolios; and controlling for market risk.

Country

Belgium

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Keywords

Investment Decisions, Event Studies, Information and Market Efficiency, Bond Interest Rates, G14, Trading volume, Asset Pricing, Asset Pricing; Trading volume; Bond Interest Rates, Size premium; discount rates; market frictions; aggregate book-to-market, Economie, G11, G12, Information and Market Efficiency; Event Studies, Portfolio Choice, Portfolio Choice; Investment Decisions, jel: jel:G12, jel: jel:G11, jel: jel:G14

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