Ang, who offered an impassion plea on 7 September to a large group from SSBV, has become the leading proponent of eliminating or minimizing the traditional size premia. His argument focuses on the change in market behavior since the early 1980s.
“In this regard, at best, there might have been a size effect prior to Rolf Banz’ publication in 1981,” says Ang. (Fama and French found a similar effect in 1992.) But the standard textbooks in business valuation all promote the use of a size effect, including the 2022 6th edition of Valuing a Business. But Ang reminds business valuers that even Banz wrote (in the original paper) “there is no theoretical foundation for such an effect,” recognising that size might be a proxy for one more unknown correlated factors.
Ang further reminded the SSBV audience that Sharp (not Banz) won the Nobel Prize for CAPM, which does not include a size effect. “The burden of proof is to show there is a size effect, but now things have been turned around so we’re trying to prove that there isn’t a premium,” he said.
Others now agree, including Fama and French again in 2012 and 2017. Ang even cites Horstmeyer and others in a CFA Institute blog post earlier in 2022 pointing out that large stocks outperformed small stocks since 1980.
EU-based studies, including the Kroll European Size Premia study, show inconsistent premia across the 10 deciles.
Ang’s new Applied Valuation book is due from DeGruyter early next year.
Please let us know
if you have any comments about this article or enhancements you would like to see.