Investigators such as Basu (1983) have also found a strong relationship between company size (measured by total market capitalization) and returns. Smaller firms appear to generate higher returns than large firms. Again, the interpretation of these results is controversial. The excess returns of small firms can be interpreted as an inefficiency. The interpretation of Fama and French, however, is that both P/BV and size are risk factors in addition to beta. Low P/BV stocks are often those in some financial distress and smaller stocks may be far more sensitive to economic shocks than are larger firms
