Why Has the Size Effect Disappeared

This paper explores why the size effect vanished after the early 1980s. We show that the size effects are significantly positive primarily at the bottom of the business cycles. More importantly, this dependency of the size effect on the business cycles is preserved even after the 1980s. Therefore, our findings suggest that while unconditional size effect has perished, the size effect conditional on the business cycles is alive and well. The less frequent occurrences of troughs, due to prolonged business cycle length, are shown to be responsible for the dissolution of the size effect.