Murphy's Law and Market Anomalies

Abstract

Many researchers have uncovered empirical regularities in stock market returns. If these regularities persist, investors can expect to achieve superior performance. Unfortunately, nature can be perverse. Once an apparent anomaly is publicised, only too often it disappears or goes into reverse. The latter seems to have happened to the small firm premium. After the UK size premium was documented and disseminated, a historical small-cap premium of six percent was followed by a small-cap discount of around six percent. This study presents evidence of and some explanations for the disappearance of the small firm premium.