FINANCE

A survey of one financial Market Anomaly

A Survey of one Financial Market Anomaly

Evidence of the size Effect

The initial evidence of size effect Anomaly was found during the year 1980s- 1990s and it was provide by one of US well known finance scholar (Banz, 1981) analyzed the effect of size on all US stocks by using all the common stock registered in US stock exchange. According to Benz all stocks available in the small portfolio having small market capitalization earn a relatively small risk return of across 0.40 percent per month, further (Benz, 1981) explained that normal behaviour of the people containing the small stocks does not consider to keep them because of availability of insufficient information and resulting of higher returns (Dijk, V, A, M, 2007)

There exists an ambiguity in analyzing the relationship between size of the firms and their performance in overall market for instance according to (Reinganum, 1981) firm with small sizes perform well in the market as compare to firm having large size whereas other scholars like (Brown, Kleidon and March, 1983) described the relationship between size and return is linear.

Several researches like above were carried to determine the relationship between size of the market and the daily average return however efficient study on effect of size was carried by (Fama and French, 1992) after carefully analyzing they explained the previous findings of capital Asset pricing model must not have been ignored as using those studies they suggested that that firms with smaller size perform 0.63 percent more then the larger firm, also the described that there is no relationship between beta and returns of the market returns (Dijk, V, A, M, 2007).

The finding of these scholars (Fama and French, 1992) confirm that beta does not play any role in explaining the cross-sectional study of return however size and book to market equity has enough power to explain the relationship among each others.

International Evidence on the size effect

In order to effectively understand the concept of size effect it is important to understand its effect on the international market as it provide enormous help in evaluating the financing decision of those countries, as the relationship of size effect depends on several characteristics of market like mechanism of trading, attitude and nature of investors and overall efficiency of market, and finally analyzing the effect of size effect in different market and different tine period will help in understanding the concept of Size effect returns (Dijk, V, A, M, 2007).

it has been found that the effect of size in the international market is consistent as many of small firms have outperformed the large firms in most international countries including most countries of Europe, all these results provide strong indication that collection of accurate date does not play important role in determining the size effect and this indication is based on several factors like, Whether firms of small size has the ability to outperform the large firms on risk-basis, all the previous studies conducted Are reliable as most of them are ...