The Effect of Size on Stock Returns in an Emerging Financial Exchange



This study examines the effect of firm size on excess stock returns with time
variant factor of January and July. Broadly speaking, the extant literature finds
negative relationship of firm size with stock returns. Smaller firms enjoy higher
risk adjusted returns. This study investigates all the firms listed on the Pakistan
Stock Exchange (PSX). Monthly data is used from January 2007 to November
2018; firm-level monthly closing stock price, KSE-100 index values, market
capitalization are main variables of this study. Pooled Ordinary Least Squares
(POLS) and firm Fixed-Effects (FE) regression techniques are applied, and results
suggest that size of the firm is negatively and significantly related to the stock
returns, i.e., our analysis confirms the presence of a size effect within the Pakistani
equity market. The evidence suggests that investors demand higher premium
while investing in small capitalized stocks. Moreover, little research has been
conducted to investigate the presence of firm size effect on stock return in capital
market of Pakistan. Besides, the market structure and regulatory environment of
PSX is quite different from many emerging markets of the world, such as
sophistication level of retail investors and presence of narrow price limits; hence
that demands further investigation. Lastly, our approach is more robust as we have
taken more than 340 firm-level excess stock returns data to check the size premium
on monthly-basis.

Firm Size Effect, Stock Returns,Pakistan Stock Exchange (PSX), Market Anomalies, Month-Effect

Author Biography

Saqib Sharif, Institute of Business Administration, Karachi

Associate Professor,

Department of Finance,

School of Business Studies,



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