Size Premium
The size premium is the observed tendency for smaller-cap stocks to deliver higher average returns than larger-cap stocks, reflecting higher risk and liquidity considerations. It is used as a factor in asset-pricing models, such as the SMB (Small Minus Big) component in the Fama-French Three-Factor Model.
Example: In attribution analysis, the size premium may help explain part of the explanatory power of a dataset that includes exposure to smaller firms.
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