Refer to the attached pdf for the case, and answer the following questions (each answer less than 300 words)
1. If DFA believes its size and BE/ME strategies are tied to systematic risk, then how do they justify these strategies as sound investments for their clients? Specifically, if DFA believes in efficient markets, how do they justify their own existence?
2. What are some of the trading costs associated with small, value stocks? How does DFA manage these potential trading frictions?
[url removed, login to view] the mid-1980s, small stocks have underperformed large stocks. Is this an embarrassment
to DFA? Why or why not? Does this indicate that rational or behavioral explanations for size are
more likely? (Explain your reasoning.) Based on this evidence, should DFA abandon its small
stock strategy? What if small stocks continue to underperform large stocks for another decade?
What would you tell your clients about the poor performance of the size strategy?