FIRM SIZE AND RETURNS OF STOCKS LISTED ON SESDAQ AGAINST SES MAIN BOARD

Abstract

Recent research has revealed a number of size-related anomalies that seem inconsistent with the efficient market hypothesis and hence, undermine the merit of the Capital Asset Pricing Model (CAPM) in valuing stocks' returns. Empirical evidence has shown that risk-adjusted returns tend to fall as the market value of the f:inn's outstanding shares (firm size) increases. This study investigates the relationship between firm size and returns by evaluating the performance of the common stocks of SESDAQ firms against those listed on the SES Main Board over the period 1991 to 1994. Statistical tests like the Mann Whitney non-parametric test, the Kruskal-Wallis test, the t-test and the Hotelling's multivariate T² test were employed. In addition, the Garman-Klass and the Parkinson estimators were used to calculate the daily and monthly variances respectively. Performance trends as revealed by the Adjusted Sharpe Indices indicate that the SESDAQ stocks had underperformed the market. This study also finds that the common stock of small SESDAQ and medium SES firms earned lower monthly returns than the common stock of large SES firms and the market portfolio. This contradicts the findings of Banz (1981) and Reinganum (1981a). A further examination of the CAPM results shows that the portfolio of SESDAQ stocks generally does not earn significant systematic risk-adjusted abnormal returns. Furthermore, even after correcting the beta for possible nonsynchronous bias, no size effect was detected.