A Spline Analysis of the Small Firm Effect: Does Size Really Matter?

Posted: 22 Oct 1996

See all articles by Joel L. Horowitz

Joel L. Horowitz

Northwestern University

Tim Loughran

University of Notre Dame

N. Eugene Savin

University of Iowa - Henry B. Tippie College of Business - Department of Economics

Date Written: August 30, 1996

Abstract

This paper uses average monthly returns and linear spline regressions to investigate the relation between expected return and firm size during 1980-1994. We find that the average monthly returns are approximately constant across size deciles. The estimated spline regressions vary substantially from year-to-year. Our analysis of the year-by-year estimates suggests that the annual regression function is essentially flat, except possibly for the smallest two deciles. The results are similar for the January and non-January months. Hence, the evidence does not support the prevalent use of size as an explanatory variable for returns during the 1980-1994 period.

JEL Classification: C1, C2, C3, C4, C5, C8

Suggested Citation

Horowitz, Joel L. and Loughran, Tim and Savin, Nathan Eugene, A Spline Analysis of the Small Firm Effect: Does Size Really Matter? (August 30, 1996). Available at SSRN: https://ssrn.com/abstract=4344

Joel L. Horowitz (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Tim Loughran

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Nathan Eugene Savin

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

108 Pappajohn Building
Iowa City, IA 52242
United States
319-335-0855 (Phone)

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