Asness et al. (2018) demonstrate the reemergence of the size premium (SMB) once one controls for firm quality within time series regressions. We demonstrate that the size premium disappears during periods of monetary tightening and is present during periods of monetary expansion; whether or not...

In this paper, we provide evidence that the size premium (SMB) is more significantly related to monetary policy than to firm quality or to business cycle troughs. Across both economic expansion and contraction periods, whether we control for firm quality or not, we show that monetary tightening...