Size Still Matters!

45 Pages Posted: 25 Aug 2014

See all articles by Wenyun Shi

Wenyun Shi

Shanghai Jiao Tong University

Yexiao Xu

University of Texas at Dallas - School of Management

Date Written: August 23, 2014


Recent studies have challenged the cross-sectional explanatory power of the size variable for stock returns. In this paper, we reexamine the size effect by disentangling the delisting effect at the same time. We believe that firms to be delisted from their current stock exchanges usually experience some fundamental changes in financing or structures, which should introduce certain abnormal components into returns right before the delisting date. Therefore, the risk-return relation during this period would be very different from the ordinary patterns. In particular, we find that when a firm is close to be delisted from its current stock exchange, its returns are positively related to firm size, and this opposite effect offsets the original negative size effect. By excluding the delisting period, we are able to restore the negative size effect in a rather robust way. Additionally, we reconstruct the commonly used SMB, HML and UMD proxies without stocks that are in their delisting process, and show a significant improvement in the time-series fit over the existing proxies. Overall, we illustrate that size effect is still approximating for certain risk factors in empirical studies. However, there does exist a very different risk-return behavior during the delisting period, which should be reasonably distinguished from other observations.

Suggested Citation

Shi, Wenyun and Xu, Yexiao, Size Still Matters! (August 23, 2014). 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: or

Wenyun Shi (Contact Author)

Shanghai Jiao Tong University ( email )

1954 Huashan Road
Shanghai, 200034

Yexiao Xu

University of Texas at Dallas - School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States
972-883-6703 (Phone)


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