The Return of the Size Anomaly: Evidence from the German Stock Market

University of Cambridge, Judge Business School Working Paper No. 23/2006

70 Pages Posted: 16 Jan 2007 Last revised: 5 Jul 2009

See all articles by Amir Amel-Zadeh

Amir Amel-Zadeh

University of Oxford - Said Business School

Date Written: December 30, 2008

Abstract

This paper examines the size-effect in the German stock market and intends to address several unanswered issues on this widely known anomaly. Unlike recent evidence of a reversal of the size anomaly we document a conditional relation between size and returns. We also detect strong momentum across size portfolios. Our results indicate that the marginal effect of firm size on stock returns is conditional on the firm’s past performance. We use an instrumental variable estimation to address Berk’s critique of a simultaneity bias in prior studies on the small firm effect and to investigate the economic rationale behind firm size as an explanatory variable for the variation in stock returns. The analysis in this paper indicates that firm size captures firm characteristic components in stock returns and that this regularity cannot be explained by differences in systematic risk.

Keywords: Size-effect, capital market anomaly, CAPM, efficient markets, momentum

JEL Classification: G12, G14, C21, C31

Suggested Citation

Amel-Zadeh, Amir, The Return of the Size Anomaly: Evidence from the German Stock Market (December 30, 2008). University of Cambridge, Judge Business School Working Paper No. 23/2006. Available at SSRN: https://ssrn.com/abstract=952472 or http://dx.doi.org/10.2139/ssrn.952472

Amir Amel-Zadeh (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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