The Size Premium and Intertemporal Risk

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type 01 Jan 2016 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Thiago de Oliveira Souza;

doi: 10.2139/ssrn.2797164

The Size Premium and Intertemporal Risk

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Abstract

The size premium only exists in states with good investment opportunities, when the aggregate (median) book-to-market is within the top 30%, for example. The expected annual premium is around 9% in these states and insignificant otherwise. This fact is inconsistent with the unconditional version of the ICAPM, which predicts a negative size premium. The ICAPM does not condition down because of the time-varying risk premium, but there is almost no evidence that the conditional version of the ICAPM is consistent with the properties of the premium either. These results hold in each subperiod - before and after 1960 - between 1926 and 2014.

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University of Southern Denmark
Denmark

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