IDEAS home Printed from https://ideas.repec.org/a/sae/vision/v9y2005i4p27-42.html
   My bibliography  Save this article

Size Effect in Indian Stock Market: Some Empirical Evidence

Author

Listed:
  • Sanjay Sehgal
  • Vanita Tripathi

Abstract

In this study we attempt to test if there is a size effect in Indian stock market. The data relates to the top 482 Indian companies for the period 1990–2003. We find a strong size premium using six alternative measures of company size, viz., Market Capitalization, Enterprise Value, Net Fixed Assets, Net Annual Sales, Total Assets and Net Working Capital. Further the size based investment strategy seems to be economically feasible as it provides extra normal returns on risk adjusted basis. Frequent rebalancing of size based portfoilo is however found to be undesirable. The size effect does not seem to be owing to any seasonality or business cycle factors. The study has strong implications for mutual funds managers, investment analysts as well as small investors who are continuously on the lookout for trading strategies that beat the market. The presence of a strong size premium also raises doubts about the informational efficiency of Indian equity market.

Suggested Citation

  • Sanjay Sehgal & Vanita Tripathi, 2005. "Size Effect in Indian Stock Market: Some Empirical Evidence," Vision, , vol. 9(4), pages 27-42, October.
    • Handle: RePEc:sae:vision:v:9:y:2005:i:4:p:27-42
    DOI: 10.1177/097226290500900403
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/097226290500900403
    Download Restriction: no
    File URL: https://libkey.io/10.1177/097226290500900403?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Blume, Marshall E. & Stambaugh, Robert F., 1983. "Biases in computed returns : An application to the size effect," Journal of Financial Economics, Elsevier, vol. 12(3), pages 387-404, November.
    2. Brown, Philip & Keim, Donald B. & Kleidon, Allan W. & Marsh, Terry A., 1983. "Stock return seasonalities and the tax-loss selling hypothesis : Analysis of the arguments and Australian evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 105-127, June.
    3. Cook, Thomas J. & Rozeff, Michael S., 1984. "Size and Earnings/Price Ratio Anomalies: One Effect or Two?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(4), pages 449-466, December.
    4. Bhandari, Laxmi Chand, 1988. " Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence," Journal of Finance, American Finance Association, vol. 43(2), pages 507-528, June.
    5. James, Christopher M & Edmister, Robert O, 1983. "The Relation between Common Stock Returns Trading Activity and Market Value," Journal of Finance, American Finance Association, vol. 38(4), pages 1075-1086, September.
    6. Basu, S, 1977. "Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis," Journal of Finance, American Finance Association, vol. 32(3), pages 663-682, June.
    7. Reinganum, Marc R., 1981. "Misspecification of capital asset pricing : Empirical anomalies based on earnings' yields and market values," Journal of Financial Economics, Elsevier, vol. 9(1), pages 19-46, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sanjay Sehgal & Vidisha Garg & Florent Deisting, 2012. "Relationship between cross sectional volatility and stock returns: Evidence From India," Post-Print hal-01881918, HAL.
    2. Lorraine D’Mello & Sheeja Sivaprasad, 2015. "An Investment Strategy Based on Leverage: Evidence from BSE 500," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(3), pages 210-238, December.
    3. Min Bai, 2021. "Are firm characteristics priced differently between opposite short‐sales regimes?," International Finance, Wiley Blackwell, vol. 24(1), pages 95-118, April.
    4. Praveen Bhagawan M. & P.J. Jijo Lukose, 2014. "Currency Exposure and Hedging Practices among Indian Non-financial Firms," Foreign Trade Review, , vol. 49(3), pages 247-262, August.
    5. Harshita & Shveta Singh & Surendra S. Yadav, 2018. "Changing Nature of the Value Premium in the Indian Stock Market," Vision, , vol. 22(2), pages 135-143, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gabriel Hawawini & Donald B. Keim, "undated". "The Cross Section of Common Stock Returns: A Review of the Evidence and Some New Findings," Rodney L. White Center for Financial Research Working Papers 08-99, Wharton School Rodney L. White Center for Financial Research.
    2. Pheng Bian Ong & Mohamed Hisham Hanifa & Mansor Mohd Isa, 2018. "Do Firm Size and Value Affect Shareholder Returns in Malaysia?," Capital Markets Review, Malaysian Finance Association, vol. 26(2), pages 53-69.
    3. Ikram ul Haq & Kashif Rashid, 2014. "Stock Market Efficiency and Size of the Firm: Empirical Evidence from Pakistan," Oeconomics of Knowledge, Saphira Publishing House, vol. 6(1), pages 10-31, March.
    4. repec:fau:fauart:v:65:y:2015:i:1:p:84-104 is not listed on IDEAS
    5. Robert J. Sweeney & Robert F. Scherer & Janet Goulet & Waldemar M. Goulet, 1996. "Investment Behavior and the Small Firm Effect," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 5(3), pages 251-269, Fall.
    6. Zaremba Adam & Konieczka Przemysław, 2017. "Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 53(3), pages 26-47, September.
    7. Don Anderson & Anthony Lynch & Nicholas Mathiou, 1990. "Behaviour of CAPM Anomalies in Smaller Firms: Australian Evidence," Australian Journal of Management, Australian School of Business, vol. 15(1), pages 1-38, June.
    8. Bjorn Wahlroos & Tom Berglund, 1984. "Anomalies and Equilibrium Returns in a Small Stock Market," Discussion Papers 589, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    9. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    10. Adam Zaremba & Przemys³aw Konieczka, 2016. "Paper profits from value, size and momentum: evidence from the Polish market," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 11(3), pages 58-69, February.
    11. Ying Huang & Chia-Hui Tsai & Carl R. Chen, 2007. "Expected P/E, Residual P/E, and Stock Return Reversal: Time-Varying Fundamentals or Investor Overreaction?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 6(1), pages 11-28, April.
    12. Francesco Campanella & Mario Mustilli & Eugenio D¡¯Angelo, 2016. "Efficient Market Hypothesis and Fundamental Analysis: An Empirical Test in the European Securities Market," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 27-42, February.
    13. Rocciolo, Francesco & Gheno, Andrea & Brooks, Chris, 2022. "Explaining abnormal returns in stock markets: An alpha-neutral version of the CAPM," International Review of Financial Analysis, Elsevier, vol. 82(C).
    14. Robert D. Arnott & Jason C. Hsu & Jun Liu & Harry Markowitz, 2015. "Can Noise Create the Size and Value Effects?," Management Science, INFORMS, vol. 61(11), pages 2569-2579, November.
    15. Graham Baird & James Dodd & Lawrence Middleton, 2020. "A growth adjusted price-earnings ratio," Papers 2001.08240, arXiv.org.
    16. De Nard, Gianluca & Zhao, Zhao, 2022. "A large-dimensional test for cross-sectional anomalies:Efficient sorting revisited," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 654-676.
    17. Philip Gharghori & Ronald Lee & Madhu Veeraraghavan, 2009. "Anomalies and stock returns: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(3), pages 555-576, September.
    18. Audi, Marc & Sadiq, Azhar & Ali, Amjad, 2021. "Performance Evaluation of Islamic and Non-Islamic Equity and Bonds Indices: Evidence from selected Emerging and Developed Countries," MPRA Paper 109866, University Library of Munich, Germany.
    19. Keith Anderson & Chris Brooks, 2005. "The Long-Term P/E Radio," ICMA Centre Discussion Papers in Finance icma-dp2005-02, Henley Business School, University of Reading.
    20. Ding, David K. & Chua, Jia Leng & Fetherston, Thomas A., 2005. "The performance of value and growth portfolios in East Asia before the Asian financial crisis," Pacific-Basin Finance Journal, Elsevier, vol. 13(2), pages 185-199, March.
    21. Committee, Nobel Prize, 2013. "Understanding Asset Prices," Nobel Prize in Economics documents 2013-1, Nobel Prize Committee.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:vision:v:9:y:2005:i:4:p:27-42. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.