"The first shall be last". Size and value strategy premia at the London Stock Exchange

The paper analyses the determinants of cross-sectional stock returns at the London Stock Exchange in the last 26 years. It finds that portfolio strate gies based on low values of earning per share (EPS), market to book value ( MTBV), market Value (MV) and return on equity (ROE) significantly outperfor m the index. Do size and value (S&V) strategy premia disappear when risk-ad justed or do they reveal gains from trading against noise, near rational, l iquidity or "weak-hearted" traders? We find that the significance of cross- sectional determinants of these strategies is not absorbed by ex post betas . They are not riskier in terms of monthly return standard deviations, cova riation with GDP growth and their premia do not disappear when survivorship bias is taken into account. Portfolio mean monthly returns (MMRs), regress ed on several risk factors in 3-CAPM models, confirm that S&V strategy prem ia persist when risk adjusted. Empirical results also mark the difference b etween ROE and MTBV portfolios, on the one side, and MV and EPS portfolios, on the other. Descriptive statistics on preformation and postformation ret urns, average balance sheet values and preformation standard deviations cle arly show that ROE and MTBV portfolios have a common financial distress fac tor and are then more exposed to systematic risk. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification. G11.