Suddenly business as usual for small-cap investing is in need of a makeover, thanks to a new research paper (a landmark study for asset pricing) that revisits, reinterprets and ultimately revives the case for owning these shares — after controlling for quality, i.e., “junk”. Cliff Asness of AQR Capital Management and several co-authors have dissected the small-cap effect anew and discovered that there is a statistically robust small-cap premium across time after all, but only for companies that aren’t wallowing in financial trouble of one kind or another. The paper’s title says it all: “Size Matters, If You Control Your Junk.”
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The stock market crashed; it collapsed; it tanked. Or as MarketWatch.com described yesterday’s 1.34% decline: “S&P 500 plunges from major resistance.” Oh, my… that sounds serious. But before we dig a bunker, let’s put yesterday’s price action into perspective. Was the slide unusual? Well, maybe, although “unusual” depends on your expectations for volatility. What does that mean? Depends on who’s speaking. But no worries. A quick tour of market stats will (hopefully) clear up the ambiguity.
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The site’s servers are having a bit of a hissy fit this afternoon and so the computer seems to have eaten today’s posts. I’ll repost shortly, but there’ll probably be some broken links. Apologies…