Case

* DESCRIPTION

Dimensional Fund Advisors (DFA) is an investment management firm that prides itself on basing its investment strategies on sound academic research. Many of the best-known finance research papers of the past two decades (especially those by Eugene Fama and Kenneth French, who work closely with DFA) have led to DFA investment strategies. DFA began as a small-stock fund, attempting to take advantage of the "size affect" (excess performance of small stocks) that had been discovered by a number of academic researchers. Later, DFA added "value" strategies to its mix of offerings. After academic research documented superior performance by value stocks in a multitude of countries, DFA began to create a variety of international value-stock and small-stock investment funds. The company was highly successful, despite missing out on the great 1990s growth-stock boom. DFA's assets under management grew from $8 billion to $40 billion between 1991 and 2002. With value stocks having performed well in the first two years of the new decade, DFA is experiencing continued growth of its investor base and is now seeking new areas in which it can add value for investors while continuing to claim to have no special "stock-picking" ability.

Questions for HBS Case at the Dimensional Fund Advisors (The Size Effect and The Value Effect)

* What is DFA's business strategy?

* Do you think DFA people are really believers in efficient markets? Why?

* What is block trade?

* Do DFA traders focus on the fundamental analysis of a firm when they need to minimize the adverse selection problem (i.e., the lemons problem) in trading? Why?

* After the publication of Banz's paper on the size effect in 1981, small firms had not performed very well throughout the 1980s and early 1990s. However, DFA's small-stock funds still managed to outperform small-stock indexes and most other small cap funds. Why?

* Do the Fama-French findings make sense? Should we expect small...