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Title: A re-examination of the size effect: The influence of winning stocks in size portfolios Authors:  Jose Olmo - University of Southampton (United Kingdom) [presenting]
Richard McGee - University College Dublin (Ireland)
Abstract: The influence on the size effect of the top performing stocks on a cross-section of risky assets separated by industry is empirically investigated. To do this, we propose a conditional logit model for ranking different investment portfolios based on size and assess the robustness of the ranking to the inclusion/exclusion of the best performing stocks in the cross-section. We apply this methodology for analysing the performance of different size portfolios constructed for $20$ U.S. industries over the period January $1970$ to December 2015. Our results show that the size effect is spurious for most industries once we remove the winning stocks of the size portfolios. The application of this analysis to asset pricing shows that standard asset pricing models fail to correctly specify the risk premium on risky assets when the industry winners are excluded from the construction of the size factor portfolio.