Equity factors are not as straightforward as they may seem to be. There is an ongoing debate about their usability or expected return since they have a cyclical nature. Moreover, the modern trend of smart beta only fuels this debate. Novel research by Blitz and Hanauer examines the size factor and sheds some light on this elusive anomaly. The size seems to be weak as a stand-alone factor, but it’s far from useless. The academic paper suggests that the size factor can be an important addition to the other equity factors as it helps to unlock the full potential of the quality, value or momentum factors.
Authors: Blitz, David and Hanauer, Matthias Xaver
Title: Settling the Size Matter