Size factor . Regime test

Education . Factor Models . 3 of 4 RupeeCase

The regime test.

Size is not a forever trade. It pays in one weather and reverses in the other.

When size pays

Early-cycle recovery off a washout low

Liquidity expanding, rate cuts in the pipe

Small caps cheap vs large on forward earnings

Few people own the trade yet

When it reverses

Late cycle, liquidity tightening

Risk-off, the bid for liquidity returns

Small caps already re-rated past large

Everyone owns it, the screen is crowded

The premium that survives Banz is mostly compensation for illiquidity and distress risk. You get paid to hold what others cannot sell in a hurry. That is why it shows up as a deeper drawdown, not a free lunch. The pattern, not the average, is the trade.