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A Spline Analysis of the Small Firm Effect: Does Size Really Matter?

Author

Listed:
  • Joel L. Horowitz

    (Univ. of Iowa)

  • Tim Loughran

    (Univ. of Iowa)

  • N. E. Savin

    (Univ. of Iowa)

Abstract

This paper uses average monthly returns and linear spline regressions to investigate the relation between expected return and firm size during 1980-1994. We find that the average monthly returns are approximately constant across size deciles. The estimated spline regressions vary substantially from year-to-year. Our analysis of the year- by-year estimates suggests that the annual regression function is essentially flat, except possibly for the smallest two deciles. The results are similar for the January and non-January months. Hence, the evidence does not support the prevalent use of size as an explanatory variable for returns during the 1980-1994 period.

Suggested Citation

  • Joel L. Horowitz & Tim Loughran & N. E. Savin, 1996. "A Spline Analysis of the Small Firm Effect: Does Size Really Matter?," Econometrics 9608001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpem:9608001
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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