Abstract：Recently, various models have been proposed to explain the cross section of returns in the U.S. stock markets. I present a comparison of a microcapbased factor model with other competing models. I find that the microcap factors mostly explain factors in other models, especially the models of Fama and French (2015, 2016), but not vice versa. In contrast, all-size investment and profitability factors do not perform well in explaining the microcap return spreads. In addition, I find that it is necessary to include multiple characteristics in constructing microcap factors, in order to better explain the microcap return spreads.

Key Words: Microcaps; Factor models; Investment; Profitability.

http://www.aeconf.com/Articles/Nov2024/aef250209.pdf