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Resurrecting the size effect: Evidence from a panel nonlinear cointegration model for the G7 stock markets

  • Apergis, Nicholas
  • Payne, James E.

Firm size is known to be an important factor affecting stock returns. This study proposes a panel threshold cointegration model to investigate the impact of the size effect on stock returns for the panel of G7 countries: Canada, France, Germany, Italy, Japan, the U.K., and the U.S. over the period 1991:1–2012:12. The empirical analysis is based upon the nonlinear cointegration framework using the asymmetric ARDL cointegration methodology (Shin et al., 2011). This methodological approach permits a much richer degree of flexibility in the dynamic adjustment process toward equilibrium, than in the classical linear model. Our findings indicate the presence of asymmetric adjustment around a unique long-run equilibrium. In particular, the empirical analysis provides evidence of asymmetric effects between stock returns and the size effect, while controlling for the book-to-market ratio and the price-to-earnings ratio.

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Article provided by Elsevier in its journal Review of Financial Economics.

Volume (Year): 23 (2014)
Issue (Month): 1 ()
Pages: 46-53

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Handle: RePEc:eee:revfin:v:23:y:2014:i:1:p:46-53
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620170

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