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Size Anomaly on the Taiwan Stock Exchange

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  • Tung Liang Liao

Abstract

This study uses the stochastic dominance theory, which is distribution-free, to examine the relationship between realised returns and firm size for companies listed on the Taiwan Stock Exchange between 1982 and 1999. The findings show that small-cap and large-cap portfolios outperform both medium-cap portfolios and the market, when investors are allowed to borrow and lend money at prevailing risk-free rates. The ‘traditional’ size effect exists only when investors are permitted to borrow and lend money at very high risk-free interest rates. As compared to mature markets, like in the US or UK, our findings also indicate that the widespread use of size in asset pricing is doubtful in emerging markets after 1980.

Suggested Citation

  • Tung Liang Liao, 2005. "Size Anomaly on the Taiwan Stock Exchange," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 4(1), pages 81-100, April.
    • Handle: RePEc:sae:emffin:v:4:y:2005:i:1:p:81-100
    DOI: 10.1177/097265270400400105
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    References listed on IDEAS

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    1. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
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    3. Keim, Donald B., 1983. "Size-related anomalies and stock return seasonality : Further empirical evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 13-32, June.
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    5. Seyhun, H. Nejat, 1993. "Can Omitted Risk Factors Explain the January Effect? A Stochastic Dominance Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(2), pages 195-212, June.
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    Cited by:

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