Scandinavian Working Papers in Economics
Discussion Papers on Economics,
University of Southern Denmark, Department of Economics
No 3/2016: The size premium and intertemporal risk
Thiago de Oliveira Souza ()
Additional contact information
Thiago de Oliveira Souza: Department of Business and Economics, Postal: University of Southern Denmark, Campusvej 55, DK-5230 Odense M, Denmark
Abstract: The size premium only exists in states with good investment opportunities, when the aggregate (median) book-to-market is within the top 30%, for example. The expected annual premium is around 9% in these states and insignificant otherwise. This fact is inconsistent with the unconditional version of the ICAPM, which predicts a negative size premium. The ICAPM does not condition down because of the time-varying risk premium, but there is almost no evidence that the conditional version of the ICAPM is consistent with the properties of the premium either. These results hold in each subperiod - before and after 1960 - between 1926 and 2014.
Keywords: Conditional; ICAPM; size premium; consistency; subsamples
41 pages, June 17, 2016
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dpbe3_2016.pdf?la=da
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