War, Crisis, and the Capital Market: The Anomaly of the Size Effect in Germany, 1872-1990

50 Pages Posted: 2 Mar 2005

See all articles by Margaryta Korolenko

Margaryta Korolenko

University of Tuebingen - Department of Economics

Jörg Baten

University of Tuebingen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: February 28, 2005

Abstract

The size effect is an important capital market anomaly, which could not be explained by standard theory so far: stocks of smaller firms do often better than large caps. Risk measures did not invalidate these results in previous studies. Our hypothesis is that the size effect appears (and will re-appear) during the wars and the decade after wars as well as other economic and political crises, because risk-averse investors might tend to buy blue chips. In order to test this, we estimate the size effect for the pre-WWI period (1872-1913) and the WWI period and its aftermath. We connect those time series with Stehle's (1997) estimates for 1954 through 1990, so that a number of hypotheses can be tested with N=78.

Keywords: Size effect, asset pricing, capital market, financial history

JEL Classification: G10, G12, N10, N20, O16

Suggested Citation

Korolenko, Margaryta and Baten, Jorg, War, Crisis, and the Capital Market: The Anomaly of the Size Effect in Germany, 1872-1990 (February 28, 2005). EFA 2005 Moscow Meetings Paper. Available at SSRN: https://ssrn.com/abstract=675362 or http://dx.doi.org/10.2139/ssrn.675362

Margaryta Korolenko (Contact Author)

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany
+49 7071 2972573 (Phone)
+49 7071 295119 (Fax)

Jorg Baten

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany
+49 7071 2972985 (Phone)
+49 7071 295119 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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