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Alternative Proxy for Small Stocks in Measuring the Size Effect

April 15, 2024 • Posted in Size Effect

In response to “Measuring the Size Effect with Capitalization-based ETFs” and in view of the research summarized in “Quality-enhanced Size Effect”, a subscriber suggested using either iShares Core S&P Small-Cap ETF (IJR) or Vanguard S&P Small-Cap 600 Index Fund (VIOO) in place of iShares Russell 2000 ETF (IWM) as a proxy for small stocks. The idea behind this substitution is that IJR and VIOO select profitable companies from the S&P 600, while many Russell 2000 stocks are unprofitable. We choose IJR based on its much longer history, the same length as that for IWM. We again use SPDR S&P 500 ETF Trust (SPY) as a proxy for large stocks. We restate results for IWM for comparison. Using monthly dividend-adjusted closing prices for IWM, IJR and SPY during May 2000 (limited by IWM and IJR) through March 2024, we find that: (more…)

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