· Review of Financial Studies, Vol. 8 No. 2, pp. 275-286. (Summer, 1995)
This paper argues
that the size related regularities in asset prices should not be regarded as
anomalies. Indeed, the opposite result is demonstrated. Namely, a truly
anomalous regularity would be if an inverse relation between size and return
was not observed. We show theoretically
(1) that the size related regularities should be observed in the economy and
(2) why size will in general explain the part of the cross-section of expected
returns left unexplained by an incorrectly specified asset pricing model. In
light of these results we argue that size related measures should be used in
cross-sectional tests to detect model misspecifications.
The full text of this article is available from RFS by clicking on the reference link and also online at JSTOR.