SMB-arousal, disproportionate reactions and the size-premium
This paper examines SMB (small minus big), the mimicking portfolio in Fama and French's [Fama, E., French, K., 1993. Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3–56] three-factor asset pricing model. We do not examine whether SMB is a factor in e...
| Main Authors: | , , |
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| Format: | Journal Article |
| Published: |
Elsevier
2007
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| Subjects: | |
| Online Access: | http://hdl.handle.net/20.500.11937/44507 |
| Summary: | This paper examines SMB (small minus big), the mimicking portfolio in Fama and French's [Fama, E., French, K., 1993. Common risk factors in the returns on stocks and bonds, Journal of Financial Economics 33, 3–56] three-factor asset pricing model. We do not examine whether SMB is a factor in explaining the cross-section of returns. This paper's focus is why S is greater than B. After controlling for marketpervasive effects, we argue that the small-firm premium is driven by both investors' emotional arousal (proxied by the turnover ratio) and their disproportionate reactions to arousing stimuli. |
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