The role of industry membership and monetary policy in generating the size effect

We examine how the small-minus-big (SMB) size premium changes when firms from different industries are included and excluded from its calculation. Through this analysis, we are able to deduce whether firms in a particular industry play a significant role in generating the size premium, whether certain industries are irrelevant to the size premium, and if the firms in certain industries detract from the phenomenon. We carry out this examination in the context of the monetary policy being pursued by the Federal Reserve over the time periods in which the returns are generated. We find large variations in the returns to a SMB portfolio depending on the monetary policy and the industry to which the firms being considered belong. Analysis of which industries contribute to which patterns is carried out.