Migration of stocks across size and value portfolios contributes to the size and
value premiums in average stock returns. The size premium is almost entirely
generated by the small-capitalization stocks that earn extreme positive returns
and thus become big-cap stocks. The value premium comes from (1) value stocks
that improve in type because their companies are acquired by other companies or
because they earn high returns and migrate to a neutral or growth portfolio, (2)
growth stocks that earn low returns and thus move to a neutral or value
portfolio, and (3) the slightly higher returns on value stocks that do not
migrate compared with the returns on growth stocks that do not migrate.