Discount rates, market frictions, and the mystery of the size premium

Thiago de Oliveira Souza

No 15/2014, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

Abstract: The average year-end size premium is significant 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 different time periods finds conflicting results regarding the existence of the size premium. This transitional dynamics also suggests that market frictions may explain the size premium. The effect is pervasive and it is present in different 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.

Keywords: Size premium; discount rates; market frictions; aggregate book-to-market (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014-09-16
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Discount Rates, Market Frictions and the Mystery of the Size Premium (2013)
Working Paper: Discount rates, market frictions and the mystery of the size premium (2013)
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