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

Author

Listed:
  • Ikram ul Haq

    (COMSATS Institute of Information Technology, Pakistan)

  • Kashif Rashid

    (COMSATS Institute of Information Technology, Pakistan)

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.

Suggested Citation

  • Ikram ul Haq & Kashif Rashid, 2014. "Stock Market Efficiency and Size of the Firm: Empirical Evidence from Pakistan," Oeconomics of Knowledge, Saphira Publishing House, vol. 6(1), pages 10-31, March.
    • Handle: RePEc:eok:journl:v:6:y:2014:i:1:p:10-31
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G1 - Financial Economics - - General Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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