Size Factor
A-share size factors: market capitalisation and micro-cap exposure
Size factors compare smaller and larger companies. Smaller names may have different risk, liquidity and coverage characteristics, so size cannot be separated from trading capacity.
Typical direction
State the intended direction explicitly; smaller-cap studies require capacity review.
Data
Price, total shares, free-float shares and listing data
Refresh
Monthly refresh is common
Research hypothesis
Write the hypothesis before reading the backtest
Market-cap exposures may provide information in a defined, tradable universe, but the direction and persistence require separate A-share testing.
A factor is a testable research hypothesis, not an investment recommendation or return promise.
Factor health card
Pre-backtest checks for this factor
Research purpose
Test size exposures only after defining a tradable universe.
Refresh and rebalance
Usually monthly; share changes and unlocks need time-consistent handling.
Data timing
Version total shares, free float and listing status historically.
Neutralisation
Review sector and liquidity together.
Overlapping exposures
Strongly related to liquidity and micro-cap risk.
Check before use
Set listing-age, trading-value and participation thresholds.
Definitions
Core measures
Total market capitalisation
Close price × total sharesCaptures the full equity value.
Free-float market capitalisation
Close price × free-float sharesOften closer to tradable capacity.
Log market capitalisation
ln(market capitalisation)Common in neutralisation regressions.
Listing age
Current date − listing dateUseful for new-listing exclusion rules.
Research protocol
Keep the same research conventions across factors
Data availability
Financial, dividend and share data become available on actual disclosure or implementation dates, not report-period end dates.
Universe and exclusions
Document index membership, listing age, ST, suspensions, delistings and missing-data rules.
Processing and neutralisation
Version winsorisation, standardisation, sector/size neutralisation and missing-value rules.
Tradability
Include price limits, suspensions, participation, fees, slippage and market impact.
Out-of-sample review
Report IC, grouped returns, exposures, turnover and rolling out-of-sample evidence together.
Build and validate
What to test
- 1Compare total and free-float size.
- 2Report capacity after each universe filter.
- 3Review delisted names and survivorship treatment.
Common pitfalls
- ×Calling a micro-cap exposure a broadly investable factor.
- ×Ignoring listing-age restrictions.
- ×Using today’s shares for historical values.
A-share implementation
A-share checks that belong in the backtest
- Use the actual disclosure or implementation date; do not make a field available at the report-period end date.
- State the universe, listing-age, ST, suspension, delisting and missing-data rules before running the backtest.
- Model price limits, suspensions, fees, slippage and participation limits instead of assuming every close can be traded.
- Share unlocks and new listings can materially change free-float capacity.
Research prompt
A reviewable starting prompt
“Test free-float market-cap ranks in an A-share universe with listing-age, trading-value and participation filters. Report net returns, capacity, liquidity exposure and results with delisted names retained.”
FAQ
Is smaller always better?
No. Size effects vary by market and implementation. Smaller names can introduce severe liquidity and capacity risk.
Which size measure should be used?
Choose total or free-float market cap based on the question, and keep the choice fixed throughout the study.