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A Direct Test of Roll's Conjecture on the Firm Size Effect

A Direct Test of Roll's Conjecture on the Firm Size Effect ABSTRACT Empirical research indicates that small firms earn higher average rates of return than large firms, even after accounting for beta risk. Roll conjectured that the small firm effect might be attributed to improper estimation of security betas. The evidence shows that while the direction of the bias in beta estimation is consistent with Roll's conjecture, the magnitude of the bias appears to be too small to explain the firm size effect. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

A Direct Test of Roll's Conjecture on the Firm Size Effect

The Journal of Finance , Volume 37 (1) – Mar 1, 1982

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References (17)

Publisher
Wiley
Copyright
1982 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1982.tb01093.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT Empirical research indicates that small firms earn higher average rates of return than large firms, even after accounting for beta risk. Roll conjectured that the small firm effect might be attributed to improper estimation of security betas. The evidence shows that while the direction of the bias in beta estimation is consistent with Roll's conjecture, the magnitude of the bias appears to be too small to explain the firm size effect.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1982

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