大阪大学　数理・データ科学教育研究センター
Center for Mathematical Modeling and Data Science,Osaka University

Can Noise Create the Size and Value Effects?

小林 孝雄 (青山学院大学)

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4. Can Noise Create the Size and Value Effects?

大証寄附研究部門セミナーシリーズ 第39回

Can Noise Create the Size and Value Effects?

小林 孝雄 (青山学院大学)

Nobel Laureate, Harry Markowitz, and the creator of some trillion yen "Fundamental Index" industry, Robert Arnott, argue as follows:
"The low price of a small-cap stock may be the result of either a low intrinsic value or a negative price noise or a combination of the two. A low intrinsic value yields a fair return, but a negative noise in price implies that stock is undervalued, which leads to a superior return that is not related to risk. The same logic applies to value stocks, while the reciprocal logic applies to large-capitalization and growth stocks."
I will uncover a major theoretical pitfall in their argument. If time allows I will also talk about recent developments post Fama-French (size and value) equity factor model including the sources of Warren Buffett's alpha.