An interesting data set that illustrates two key concepts relating to financial returns, covered extensively in my courses:
- Liquidity risk factor - inducing added risk premium on lower liquidity assets; and
- The importance of large scale corrections in long term data series (geometric vs arithmetic averaging for returns)
Indirectly, the above also indicates the ambiguous nature of returns alpha (also a subject of my class presentations, especially in the Applied Investment & Trading course in MSc Finance, TCD): micro- small- and to a lesser extent mid-cap stocks selections are often used to justify alpha-linked fees by investment advisers. Of course, in all, ranking in liquidity risks helps explain much of geometric returns rankings, while across all, geometric averaging discount over arithmetic averaging returns helps highlight the differentials in tail risks.
Sounds pretty much on the money.
