Stock Market Efficiency and Size of the Firm: Empirical Evidence from Pakistan

Ikram ul Haq and Kashif Rashid
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Ikram ul Haq: COMSATS Institute of Information Technology, Pakistan
Kashif Rashid: COMSATS Institute of Information Technology, Pakistan

Oeconomics of Knowledge, 2014, vol. 6, issue 1, 10-31

Abstract: The purpose of this paper is to examine the relationship between firm size and excess stock returns in Pakistani market. We construct a set of 10 portfolios based on size i.e., market capitalization, total assets and sales for the period between 2007 and 2011, and analyze the annual stock returns by using sorting and Fama & Macbeth model. The results of the study indicate a prominent size effect where smaller firm or size portfolios are found to have a greater average annual excess returns than bigger firm or size portfolios during the period under analysis. We find that small firms have significantly greater excess returns than larger firms. The study has strong implications for mutual funds managers, investment analysts as well as small investors who are continuously at a lookout for the trading strategies that beat the market.

JEL-codes: G1 G12 G14 G23 G31 L25 (search for similar items in EconPapers)
Date: 2014
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