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Beta, size and returns: a study on the French Stock Exchange

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  • Jean-Jacques Lilti
  • Helene Rainelli-Le Montagner

Abstract

The aim of this paper is to test the relationship between average returns and beta of French stocks over the last six years (1990-1995). Numerous and contradictory studies recently published in the American literature have cast doubts as to whether beta plays a role at all when it comes to explaining average returns on the American Stock Exchange (e.g. Fama and French, 1992; Pettengill et al., 1995). As the results obtained seem to depend upon the methodology used, we propose to implement some of the methodological advances advocated in these recent papers to test for the usefulness of beta as a determinant of returns on the French Stock Exchange. This subject has not been dealt with in recent literature.

Suggested Citation

  • Jean-Jacques Lilti & Helene Rainelli-Le Montagner, 1998. "Beta, size and returns: a study on the French Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 8(1), pages 13-20.
    • Handle: RePEc:taf:apfiec:v:8:y:1998:i:1:p:13-20
    DOI: 10.1080/096031098333203
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    References listed on IDEAS

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    1. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    2. Gibbons, Michael R., 1982. "Multivariate tests of financial models : A new approach," Journal of Financial Economics, Elsevier, vol. 10(1), pages 3-27, March.
    3. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    4. Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March.
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    6. Pettengill, Glenn N. & Sundaram, Sridhar & Mathur, Ike, 1995. "The Conditional Relation between Beta and Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(1), pages 101-116, March.
    7. Shanken, Jay, 1985. "Multivariate tests of the zero-beta CAPM," Journal of Financial Economics, Elsevier, vol. 14(3), pages 327-348, September.
    8. Stambaugh, Robert F., 1982. "On the exclusion of assets from tests of the two-parameter model : A sensitivity analysis," Journal of Financial Economics, Elsevier, vol. 10(3), pages 237-268, November.
    9. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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    11. Fama, Eugene F & French, Kenneth R, 1995. "Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-155, March.
    12. Biais, Bruno & Hillion, Pierre & Spatt, Chester, 1995. "An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse," Journal of Finance, American Finance Association, vol. 50(5), pages 1655-1689, December.
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    Cited by:

    1. Francisco Jareno, 2008. "Spanish stock market sensitivity to real interest and inflation rates: an extension of the Stone two-factor model with factors of the Fama and French three-factor model," Applied Economics, Taylor & Francis Journals, vol. 40(24), pages 3159-3171.
    2. Durand, Robert B. & Lan, Yihui & Ng, Andrew, 2011. "Conditional beta: Evidence from Asian emerging markets," Global Finance Journal, Elsevier, vol. 22(2), pages 130-153.
    3. Guermat, Cherif & Freeman, Mark C., 2010. "A net beta test of asset pricing models," International Review of Financial Analysis, Elsevier, vol. 19(1), pages 1-9, January.
    4. Morelli, David, 2007. "Beta, size, book-to-market equity and returns: A study based on UK data," Journal of Multinational Financial Management, Elsevier, vol. 17(3), pages 257-272, July.
    5. Ziang Zhou, 2023. "Research on Small-Cap Value Rotation Investment Strategy Based on "Size Effect" - Evidence from the Chinese Stock Market," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(6), pages 1-5.

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