Startling Stock-Beta Study ‘Turns Theory on Its Head,’ Ibbotson Says

In the Fama-French analysis, which looks at beta factors/coefficients, large companies had returns of 12.44% over the 1972-2012 time period on average vs. 9.89% for small. Plus, the larger firms had lower volatility (as measured by standard deviation.)

Small companies did outperform when capitalization was examined as the key variable: 13.49% vs. 11.22% for large firms. But large companies do better when their total assets, revenue and net income are taken into consideration.

In other analysis, the latest Ibbotson research found that value beats growth. "In this area, theory and practice are consistent – you get premiums for going into value vs. growth," the speaker said, noting that value portfolios tend to have lower risk.

The researchers also found that less-liquid stocks outperform their more-liquid counterparts as measured by two different analytical methods.

One method, for instance, found that less-liquid stocks had returns for 14.74% over the last 40 years vs. 10.77% for more-liquid issues. "But, the risks differ," Ibbotson said. "Less-liquid stocks are higher risk."

The standard deviation (or beta) was 24.6% for the less-liquid stocks vs. 19.35% for the more-liquid issues.

Overall, Ibbotson said, "The lower-turnover stocks give you the greater returns at lower risk than value stocks do, and coming in a close second are the low-beta, low-volatility shares."