Premium
Australian evidence on the implementation of the size and value premia
Author(s) -
Docherty Paul,
Chan Howard,
Easton Steve
Publication year - 2013
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2011.00464.x
Subject(s) - value premium , portfolio , exploit , value (mathematics) , risk premium , economics , capital asset pricing model , transaction cost , investment (military) , econometrics , financial economics , business , monetary economics , finance , computer security , machine learning , politics , computer science , political science , law
This study investigates whether passive investment managers can exploit the size and value premia without incurring prohibitive transaction costs or being exposed to substantial tracking error risk. Returns on the value premium are shown to be pervasive across size groups, while the size premium is nonlinear and driven by microcaps. The value premium cannot be explained by the capital asset pricing model; however, returns on value portfolios do covary across monetary regimes. The substantial turnover required to achieve annual rebalancing and the relative illiquidity of Australian small‐cap firms means that investing in a portfolio of large‐cap value firms appears to be the best way for passive fund managers to exploit the Fama and French (1993) premia.