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A Valuation Study of Stock-Market Seasonality and Firm Size

47 Pages Posted: 12 Jun 2001 Last revised: 11 Mar 2013

Zhiwu Chen

University of Hong Kong; Yale University - International Center for Finance; Zebra Capital Management, LLC

Jan Jindra

U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis

Date Written: May 1, 2001

Abstract

Existing studies on market seasonality and the size effect are largely based on realized returns. This paper investigates seasonal variations and size-related differences in cross-stock valuation distribution. We use three stock valuation measures, two derived from structural models and one from book/market ratio. With each measure, we find that the average level is the highest in midsummer and the lowest in mid-December. Furthermore, the valuation dispersion (or, kurtosis)across stocks increases towards the year end and reverses direction after the turn of the year, suggesting increased movements in both the under-and-overvaluation directions. Among size groups, small-cap stocks exhibit the sharpest decline in valuation from June to December and the highest rise from December to January. For most months, small-cap stocks have the lowest valuation among all size groups. In a typical month, small-cap stocks show the widest cross-stock valuation dispersion, meaning they are also the hardest to value. Overall, large stocks enjoy the highest level of valuation uniformity and are the least subject to seasonal valuation variations.

JEL Classification: G10, G12, G13

Suggested Citation

Chen, Zhiwu and Jindra, Jan, A Valuation Study of Stock-Market Seasonality and Firm Size (May 1, 2001). Journalof Portfolio Management, Vol. 36, 2010; Yale ICF Working Paper No. 00-37. Available at SSRN: https://ssrn.com/abstract=273191 or http://dx.doi.org/10.2139/ssrn.273191

Zhiwu Chen (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong
China

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520-8200
United States
203-432-5948 (Phone)
203-432-6970 (Fax)

Zebra Capital Management, LLC ( email )

612 Wheelers Farms Road
Milford, CT 06461
United States

Jan Jindra

U.S. Securities and Exchange Commission - Division of Economic and Risk Analysis ( email )

44 Montgomery Street
San Francisco, CA 94104
United States

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