The authors gratefully acknowledge financial assistance provided by Dimensional Fund Advisors (DFA) Australia and the Australian Research Council through ARC Linkage Grant (LP0453913). The paper forms part of a larger project undertaken collaboratively with Monash University. This paper has been adapted from research presented in Michael O’Brien’s doctoral thesis. The authors thank Joey Low and Daniel Chai for assistance with the database, Phil Gray for discussions on statistical techniques, and Rob Durand and an anonymous referee for comments on the paper.
Interaction of size, book-to-market and momentum effects in Australia
Article first published online: 21 OCT 2009
© The Authors. Journal compilation © 2009 AFAANZ
Accounting & Finance
Volume 50, Issue 1, pages 197–219, March 2010
How to Cite
O’Brien, M. A., Brailsford, T. and Gaunt, C. (2010), Interaction of size, book-to-market and momentum effects in Australia. Accounting & Finance, 50: 197–219. doi: 10.1111/j.1467-629X.2009.00318.x
- Issue published online: 23 FEB 2010
- Article first published online: 21 OCT 2009
- Received 2 September 2008; accepted 11 July 2009 by Robert Faff (Editor).
- Size effect;
- Book-to-market effect;
- Momentum effect;
- capital asset pricing model;
This study seeks to disentangle the effects of size, book-to-market and momentum on returns. Initial results show that each characteristic has a role in explaining returns, but that there is interaction between size and momentum, as well as between size and book-to-market. Three key findings emerge. First, the size premium is the strongest, particularly in the loser portfolios. Second, the value premium is generally limited to the smallest portfolios. Third, the momentum premium is evident for the large- and middle-sized portfolios, but loser stocks significantly outperform winner stocks in the smallest size portfolio. When these interactions are controlled with multivariate regression, we find a significant negative average relation between size and returns, a significant positive average relation between book-to-market and returns, and a significant positive average relation between momentum and returns.