Can large value stocks hold their own against small value stocks? The answer might surprise you!

In this video we challenge the narrative that small value stocks dominate, explore what really matters for long-only value investors, discuss the impact of liquidity, rebalancing, and portfolio weighting, and examine evidence from U.S. and international markets by examining Jack Vogel's academic paper, "Long Only Investing: Does Size Matter?".

Key Topics:
• Why long/short results don't apply to most investors
• The case for equal-weighting large value stocks
• Liquidity advantages of large caps
• Factor decay and rebalancing frequency in portfolios
• Market cap weighting risks in portfolio construction

Timestamps: 
0:00 – Intro: Do small value stocks really outperform?
1:00 – The finding: Size does not matter!
2:54 – What's large and small?
4:01 – Large vs. small horse race results
4:45 – Economical vs. statistical significance
6:03 – The impact of transaction costs
8:20 – Size and factor decay
9:21 – Out-of-sample tests & variations
10:22 – What happens if one value-weights large value?
12:28 – What does this all mean for investors?
13:41 – Outro

Sources:
“Long-Only Value Investing: Does Size Matter?” by Jack Vogel, PhD: https://alphaarchitect.com/wp-content/uploads/2022/11/AA-JBISFactorInvesting22LongOnlyValueInvesting.pdf

AQR’s “The Devil in HML's Details” by Asness and Frazzini:  https://www.aqr.com/Insights/Research/Journal-Article/The-Devil-in-HMLs-Details

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Do Small Cap Value Stocks ACTUALLY Outperform?

Guest:

Andrew Lo - the Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. He’s going to talk to us about his book Adaptive Markets: Financial Evolution at the Speed of Thought, which has been shortlisted for the 2017 Financial Times and McKinsey Business Book of the Year Award

Behind the Markets Podcast: Andrew Lo

The Alpha Architect mission is to empower investors through education.

Do Small Cap Value Stocks ACTUALLY Outperform?

Alpha Architect

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