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Moving Down the Market-Cap Ladder Amplifies Factor Exposures (Part 2)

Examining momentum and low profitability

Alex Bryan 21.09.2017

In part 1 of this article, we examined how value and low volatility factors have worked among smaller-cap stocks. In part 2, we will examine the momentum and profitability factors.

Momentum
Momentum has also tended to offer the best returns among the smallest stocks, at least on paper, as Exhibit 4 shows. In practice, the transaction costs of this high-turnover strategy would eat a big chunk of these hypothetical returns, so a micro-cap momentum strategy isn’t advisable. But this return pattern provides further support for the idea that there is greater mispricing among the smallest stocks in the market than there is among large caps.

170921 marketcapsb 04(en)

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

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About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA is the Director of Passive Fund Research with Morningstar.

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