The pervasiveness, robustness and magnitude of return premia associated with size,
value and momentum has made them the focal point for discussions of market
efficiency as well as critical inputs for describing the cross-section of expected
returns. These anomalies have been shown to be robust in other stock markets, other
time periods and other asset classes, and have led to empirical asset-pricing models
that incorporate their returns. The vast literature on these anomalies has generated
a debate as to the underlying reasons for these premia, which generally fall into
two categories: rational risk-based models or behavioral theories. There is also a
lack of consensus on whether the strategies can be executed in practice.
Given the disparate views in the literature, we take stock of the empirical evidence of these anomalies, to shed some light on these issues. We examine the role of shorting, firm size and time on the profitability of size, value and momentum strategies. We find that long positions comprise almost all of size, 60% of value and half of momentum profits. Shorting becomes less important for momentum and more important for value as firm size decreases. The value premium decreases with firm size and is weak among the largest stocks. In contrast, momentum profits exhibit no reliable relation with size.
The effects are robust over 86 years of U.S. equity data and almost 40 years of data across four international equity markets and five asset classes. We find little evidence that size, value and momentum returns are significantly affected by changes in trading costs or institutional and hedge fund ownership over time.
This document is not intended to, and does not relate specifically to any investment strategy or product that Lodestone Wealth offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein.
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solicitation of an offer or any advice or recommendation to purchase any securities or other
financial instruments and may not be construed as such. The factual information set forth herein
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LLC (“Lodestone Wealth”) to be reliable but it is not necessarily all-inclusive and is not
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decision. Past performance is not a guarantee of future performance. Diversification does
not eliminate the risk of experiencing investment losses.
This material is not research and should not be treated as research. This paper does not
represent valuation judgments with respect to any financial instrument, issuer, security or
sector that may be described or referenced herein and does not represent a formal or official
view of Lodestone Wealth. The views expressed reflect the current views as of the date hereof
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expressed herein.
The information contained herein is only as current as of the date indicated, and may be
superseded by subsequent market events or for other reasons. Charts and graphs provided herein
are for illustrative purposes only. The information in this presentation has been developed
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Wealth nor the author guarantees the accuracy, adequacy or completeness of such information.
Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be
relied on in making an investment or other decision. There can be no assurance that an
investment strategy will be successful. Historic market trends are not reliable indicators of
actual future market behavior or future performance of any particular investment which may
differ materially, and should not be relied upon as such. Diversification does not
eliminate the risk of experiencing investment losses.
The information in this paper may contain projections or other forward-looking statements
regarding future events, targets, forecasts or expectations regarding the strategies described
herein, and is only current as of the date indicated. There is no assurance that such events or
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