Size Matters, if You Control Your Junk

This is a new research paper published on January 22nd 2015 that studies the return of stocks based upon the size (defined in multiple ways).  What was done differently than other studies, was that the authors used a Quality and Junk variable to apply to the data.  The result was that smaller firms outperformed larger firms in the stock market if the portfolio was controlled with the QMJ (Quality Minus Junk) factor.  Meaning that a lot of the smaller companies were “junk” but the ones that were of quality outperformed the market. The Authors: Clifford S. Asness – AQR Capital Management, LLC Andrea Frazzini – AQR Capital Management, LLC Ronen Israel – AQR Capital Management, LLC Tobias J. Moskowitz – University of Chicago – Booth School of Business Lasse Heje Pedersen -New York University (NYU) – Department of Finance; Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER) You can Download the Paper from the website here, or I have it posted on this site here.   One interesting finding was that a lot of the return of small companies resulted in the month of January: One of the biggest challenges researchers pose to…

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