“The paper is organized around a number of facts and fictions about the size effect that warrant clarification. The facts we present include: that the size effect diminished shortly after its discovery and publication; that it is dominated by a January seasonal effect; that it is not applicable or does not work for other asset classes outside of individual equities; that it can be made much stronger when looked at in conjunction with other factors (namely, defensive/quality factors); that the size premium mostly comes from microcap stocks and is difficult to implement in practice; and, finally, that the size effect continues to receive a disproportionate amount of attention relative to other factors with similar or stronger evidence behind them.”

Part of AQR’s Continuing Series on “BS Your Father Told You.”

Fact, Fiction and the Size Effect – Ron Alquist, Ronen Israel and Tobias Moskowitz