Harvesting the seasons of the size anomaly

Boris Fays (), Georges Hübner and Marie Lambert ()
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Boris Fays: University of Liège, HEC Liège
Marie Lambert: University of Liège, HEC Liège

Journal of Asset Management, 2022, vol. 23, issue 4, No 5, 337-349

Abstract: Abstract This paper employs the DSN portfolio sorting procedure introduced by Lambert et al. (J Banking Finance 114:105811, 2020) to factor size characteristics into returns. The US size anomaly boils then down to a pure seasonal effect, fully supporting the “tax-loss-pruning” hypothesis. We build a long-short calendar trading strategy, easily reproducible by an asset manager, being long the Small-minus-Big (SMB) portfolio in January (or in Q1), staying in cash in Q2 and Q3, and shorting SMB in Q4. The strategy achieves a mean yearly return close to 11% from 1963 to 2019. It remains steady over time, across a variety of subperiods, and resists to the detection of false discoveries. The abnormal returns of the long-short calendar trading strategy withstands realistic transaction costs and short sales limitations.

Keywords: Size premium; Fama-French factors; DSN factors; Calendar anomaly; Tax-loss-pruning hypothesis; January effect (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s41260-022-00272-2

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