The size premium is more significantly related to monetary policy than to firm quality or to business cycle troughs, according to a new paper. The authors conclude that monetary tightening eliminates the size premium and it re-emerges when that policy is eased whether or not one controls for quality. “Furthermore, the quality minus junk (QMJ) factor is insignificant in explaining the size premium in the 21st century,” they write. The paper is “The Resurrected Size Effect Still Sleeps in the (Monetary) Winter,” by Marc William Simpson (University of Toledo) and Axel Grossmann (Georgia Southern University). The paper is a preprint and not yet peer reviewed. To download it, click here.
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