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Size Effect In China’s Stock Market: Theories And Empirical Tests

Posted on:2015-03-25Degree:DoctorType:Dissertation
Country:ChinaCandidate:Z Y LiFull Text:PDF
GTID:1109330464955052Subject:Finance
Abstract/Summary:PDF Full Text Request
With the data of China’s A-shares market, this dissertation examines the existence and causes of size effect. Based on the role of size in the stock price formation mechanism, this dissertation focuses on the following four issues. Firstly, this paper shows the empirical evidences of size effect, which indicates the existence of size effect. Secondly, this dissertation studies the role of size in the formation of systemic risk and investment behavior from the fundamental point of view. Thirdly, the size’s influence on market information factor and whether it generates size effect are also under study. Fourthly, this dissertation also discusss the size’s influence on liquidity and relationship between liquidity and size effect. Correspondingly, the four issues are studied in chapter 4 to chapter6 individuallyThis dissertation aims to explain the cross-section of stock return, and the research teckniques follow the conmmon means in the field. Except than the classic methods like sorting into groups and Fama-MacBeth regression, panel data model is introduced as another main estimation method. Panel data model not only offer a good result under the time effect, but also applicable with individual effect. Otherwise, the method are robust for various kinds of standard errors.Three conclusions are concluded here:Firstly, size effect does exist in A-shares market, which small firms outperform the larges. The result is the most obviouos when measured by total market valuem and robust under different specifications. Secondly, information factor could be the source of size effect. Analyst coverage is used to proxy incomplete information and absorb size effect. Small firms attract less coverage and their information is always insufficient, then small firms require higher expected return. Thirdly, liquidity can partly explain size effect, which appears under time series not cross-section. There is no difference for different size portfolios’ unexplained return after adjusted by LACAPM.There are several innovations in the dissertation:Firstly, it fully discusses the estimation methods about empirical research on stock returns and introduces panel date model into related research. These methods are used to test size effect and other studies. Therefore, the estimation results are accureate and robust, which provide reference about similar studies with the aspect of methods. Under a typical production-based asset prcing model, this dissertation conducts tentative study on the economic mechanism underlying stock returns. Existing researchs about the determinant factor of stock returns usually focus on explaining the "anomolies", while the asset pricing model presented here treats the regularity of stock returns as an endogenous phenomenon. This may offer an alternative respect for further research. Thirdly, the dissertation isolates fundmentals, information and liquility in a frame of stock price formation mechanism. Size factor is discussed respectively in the three subjects. Furthmore, empirical analysis based on China’s stock market provides a possible explanation for size effect.
Keywords/Search Tags:Size effect, Asset pricing, Information, Liquidity, Panel data model
PDF Full Text Request
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