A Small-Cap Premium Strategy Using Annual Size-Based Long and Short Portfolios

Summary

The document describes a U.S. equity size-factor strategy that ranks stocks by market capitalization and takes opposite positions in the smallest and largest groups. Its stated research framing uses deciles, while the QuantConnect implementation limits the universe to the 3,000 largest eligible stocks and divides that subset into fifths. It selects NYSE, Nasdaq, and Amex listings with fundamental data, then assigns equal weights within the long and short groups.

The implementation schedules selection monthly but enables it only when its month counter reaches December, so the portfolio is refreshed annually. It targets 100% long and 100% short exposure, liquidates holdings outside the selected groups, and applies a custom fee model and 10-times leverage setting. The document provides code rather than performance results or evidence that the premium persists. Its universe restriction, annual rebalance, trading costs, leverage, and the mismatch between the described deciles and implemented quintiles all affect how faithfully it represents the stated factor strategy.

Key ideas

• The strategy buys the smallest-cap group and shorts the largest-cap group to express the size factor.
• The code screens U.S. listings with fundamental data and limits selection to the 3,000 largest stocks by market capitalization.
• The implementation divides the selected universe into fifths, although the description refers to deciles.
• Despite a monthly schedule, the selection flag causes portfolio updates only in December.
• The code uses equal group weights, 100% long and short exposure, a custom fee model, and 10-times leverage.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.