Time Varying Size and Liquidity Effects in South Asian Equity Markets: A Study of Blue-Chip Industry Stocks

Abstract:     
This paper contrasts the performance of the Capital Asset Pricing Model (CAPM) augmented by size and liquidity factors with its time varying coefficient counterpart using a unique market universe compiled from constituent stocks of blue chip indices BSE-100 (India), KSE-30 (Pakistan), DSE-20 (Bangladesh) and Dow Jones Titans (Sri Lanka). The evidence suggests that substantial size and liquidity effects are present in all markets with the sole exception of Sri Lanka. Time varying liquidity beta profiles reveal that the financial sectors of all South Asian markets have been affected by the 2008 financial crisis with exception of Sri Lanka where the market is influenced by the prolonged civil war.

Number of Pages in PDF File: 35

Keywords: Liquidity, CAPM, Kalman Filter, Emerging Financial Markets, South Asia

JEL Classification: G11, G12, G15, O55

Accepted Paper Series