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Harvesting the seasons of the size anomaly

Author

Listed:
  • Boris Fays

    (University of Liège, HEC Liège)

  • Georges Hübner

    (University of Liège, HEC Liège)

  • Marie Lambert

    (University of Liège, HEC Liège
    EDHEC Risk Institute)

Abstract

This paper employs the DSN portfolio sorting procedure introduced by Lambert et al. (J Banking Finance 114:105811, 2020) to factor size characteristics into returns. The US size anomaly boils then down to a pure seasonal effect, fully supporting the “tax-loss-pruning” hypothesis. We build a long-short calendar trading strategy, easily reproducible by an asset manager, being long the Small-minus-Big (SMB) portfolio in January (or in Q1), staying in cash in Q2 and Q3, and shorting SMB in Q4. The strategy achieves a mean yearly return close to 11% from 1963 to 2019. It remains steady over time, across a variety of subperiods, and resists to the detection of false discoveries. The abnormal returns of the long-short calendar trading strategy withstands realistic transaction costs and short sales limitations.

Suggested Citation

  • Boris Fays & Georges Hübner & Marie Lambert, 2022. "Harvesting the seasons of the size anomaly," Journal of Asset Management, Palgrave Macmillan, vol. 23(4), pages 337-349, July.
    • Handle: RePEc:pal:assmgt:v:23:y:2022:i:4:d:10.1057_s41260-022-00272-2
    DOI: 10.1057/s41260-022-00272-2
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    References listed on IDEAS

    as
    1. Laurent Barras & Olivier Scaillet & Russ Wermers, 2010. "False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas," Journal of Finance, American Finance Association, vol. 65(1), pages 179-216, February.
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    5. Kingsley Y. L. Fong & Craig W. Holden & Charles A. Trzcinka, 2017. "What Are the Best Liquidity Proxies for Global Research?," Review of Finance, European Finance Association, vol. 21(4), pages 1355-1401.
    6. Lambert, Marie & Fays, Boris & Hübner, Georges, 2020. "Factoring characteristics into returns: A clinical study on the SMB and HML portfolio construction methods," Journal of Banking & Finance, Elsevier, vol. 114(C).
    7. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
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    More about this item

    Keywords

    Size premium; Fama-French factors; DSN factors; Calendar anomaly; Tax-loss-pruning hypothesis; January effect;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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