Decomposing value: Changes in size or changes in book-to-market?

Recently, Gerakos and Linnainmaa (2018) decompose book-to-market into past book-to-market and changes in market and book values of equity. They find that book-to-market is highly persistent over time, and its explanatory power on US equity returns disappears when changes in market value of equity are accounted for. We find that, in both the US and Australian equity markets, changes in book-to-market stem largely from changes in firm size. However, contrary to the findings in the US market, book-to-market remains a strong predictor of Australian equity returns in the decomposition analysis. The results suggest that the finding in Gerakos and Linnainmaa (2018) is sample specific to the US equity market.