The financial assistance provided by ARC Linkage grant (LP0560381) and the linkage partner Acorn Capital is gratefully acknowledged. We also thank Robert Faff (the editor) and an anonymous referee for helpful comments. All remaining errors are our own.
Australian evidence on the implementation of the size and value premia
Article first published online: 28 DEC 2011
© 2011 The Authors. Accounting and Finance © 2011 AFAANZ
Accounting & Finance
Volume 53, Issue 2, pages 367–391, June 2013
How to Cite
Docherty, P., Chan, H. and Easton, S. (2013), Australian evidence on the implementation of the size and value premia. Accounting & Finance, 53: 367–391. doi: 10.1111/j.1467-629X.2011.00464.x
- Issue published online: 3 MAY 2013
- Article first published online: 28 DEC 2011
- Received 31 May 2011; accepted 15 November 2011 by Robert Faff (Editor).
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.