The size premium and intertemporal risk

Thiago de Oliveira Souza

No 3/2016, Discussion Papers on Economics from University of Southern Denmark, Department of Economics

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.

Keywords: Conditional; ICAPM; size premium; consistency; subsamples (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016-06-17
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