Bridgeway argues that the small cap premium looks stronger when investors separate stocks that have remained small from those that only recently became small. Across 60 years of U.S. data, “persistent small” stocks delivered stronger returns and higher factor model alphas than newly small stocks.
I Know What You Did Last Summer
Bridgewater
Christine Wang, Andrew Berkin
Research
35 Pages
Key Takeaways
Small Needs Definition: Small value stocks had the highest 60 year return among standard size and value portfolios at 14.91% annually.
Persistence Improves Size: Stocks that were small at the prior rebalance earned a higher premium than stocks that only recently became small.
Results Look Robust: Findings use U.S. stocks from July 1963 to June 2023 and hold across quarterly rebalancing dates, not just June.
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