Book-to-market and size effect: Risk compensation or market inefficiency

  title={Book-to-market and size effect: Risk compensation or market inefficiency},
  author={Bj{\"o}rn Hansson},
This papers applies the orthogonal portfolio approach to answer the following question: are the observed size and book-to-market effects in US data related to some risk factors besides the market risk or should these effects be interpreted as some ex post anomalies generated by market inefficiency? The orthogonal portfolio approach has been developed by MacKinlay and Pastor (2000); it is a framework for modelling asset prices by combining information in the covariance matrix and average returns… CONTINUE READING