Size-Related Risk Premiums

Discussion Papers on Business and Economics, University of Southern Denmark, 3/2018

51 Pages Posted: 5 May 2018 Last revised: 6 Apr 2019

See all articles by Thiago de Oliveira Souza

Thiago de Oliveira Souza

affiliation not provided to SSRN; University of Southern Denmark

Multiple version iconThere are 2 versions of this paper

Date Written: April 19, 2018

Abstract

This paper theoretically links the stock characteristics size and value to risks. The size premium arises – and spans the value premium – exclusively for portfolios formed in high market price of risk states. This is when the cross-sectional differences in risk premiums dominate the differences in expected cash flows connecting size and risk. Otherwise, value links better to the same risks, as it scales size by a proxy for expected cash flows. The hypothesis that value and size are (constant) risk proxies is formally rejected in the data, challenging the use of size-related portfolios as risk factors along with several strands of the literature based on this hypothesis.

Keywords: Size Premium, Value Premium, Risk, Conditional, Portfolio Sorts

JEL Classification: G11, G12, G14

Suggested Citation

de Oliveira Souza, Thiago and de Oliveira Souza, Thiago, Size-Related Risk Premiums (April 19, 2018). Discussion Papers on Business and Economics, University of Southern Denmark, 3/2018, Available at SSRN: https://ssrn.com/abstract=3165423 or http://dx.doi.org/10.2139/ssrn.3165423

Thiago De Oliveira Souza (Contact Author)

University of Southern Denmark ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

affiliation not provided to SSRN

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
69
Abstract Views
748
Rank
260,474
PlumX Metrics