Cliff Asness: Reeling In Small Cap Alpha – Quibble Fight!

Cliff Asness: Reeling In Small Cap Alpha - Quibble Fight! by AQR

In their recent white paper Reeling in Small Cap Alpha, Kalesnik and Beck make the correct, if well-known, observation that the prominent factors in modern systematic investing (e.g., value, momentum, quality) are more effective with small cap stocks than within large-cap. Furthermore, they show, as is also well-known, that the size effect itself is a weak sibling to these other biggies. While they are exploring a well-trodden path, at least none of this is wrong (there are some exceptions however — for instance, Israel and Moskowitz show that momentum delivers pretty similar performance within small- and large-caps). But the message should not be that...