Explanation:
The size factor, as introduced by Banz in 1981, primarily refers to the observation that smaller stocks tend to outperform larger ones once their beta values have been adjusted. This phenomenon is often referred to as the ‘size effect’. The beta value of a stock is a measure of its volatility in relation to the overall market. By adjusting for this volatility, Banz’s research suggested that smaller stocks generally yield better returns than larger ones. However, it’s important to note that this effect has been less pronounced since the mid-1980s.
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Q.3020 The size factor was introduced in 1981 by Banz. What does it imply?
A
It refers to the fact that, after their beta values have been adjusted, large stocks tended to perform better as compared to their smaller counterparts.
B
It refers to the risk of the size of a stock, in that, although value outperforms over the long run, larger stocks perform better than smaller ones during certain periods.
C
It refers to the fact that the performance of smaller stocks is usually better in comparison to the larger ones after their betas have been adjusted.
D
All the answers are correct.
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