Industry Impact On Size Effect In The Stock Markets

The phenomenon of size effect and Industry effect usually exists in the stock markets.Size effect refers to the stock market,according to the size of the market group,the stock returns in the small companies are high,and the stock returns in the large ones are low.The existing literature mainly explains the size effect from the perspective of risk,liquidity and irrationality of investors.With regard to industry effects,the existing literature is mainly to study the industry's impact on stock returns and from the perspective of the relationship between industry effects and other effects.Although the existing literature seldom explains the size effect from the perspective of the industry,we know that the industry affects the yield on stocks.The return on stocks may be different in different industry life cycles,and the size of the company may reflect the life cycle of different industries.This means that the size effect may be caused by the industry.This paper first based on the sequencing grouping method-ten groups of classifications to see if the phenomenon of size effect in China's stock market,sort out the market value of each stock at the end of June each year and divide it evenly into 10 groups to measure the average rate of return for each group in 1998-2016.The empirical results show that there is a significant size effect in China's stock market.The difference between the returns of the first group and the tenth group is 30.12%.Small companies obtain higher stock returns than large companies.Next,we can draw a conclusion that there are significant differences in the rate of return of different industries in China's stock market by analyzing the characteristics of the rate of industry return.Then using the multi-factor model to study the industry's impact on stock returns,stock returns regress on market index returns and industry index returns,and calculate the part of the industry impact on stock returns,in order to further test whether the industry's impact on size effect.Finally,the rate of return of each stock is excluded from its industry impact and thenranked according to the ten-group classification method to calculate the average residual rate of return which eliminates the industry's impact from 1998 to 2016 in each group.The results show that the industry has an impact on the size effect,no matter using the CSRC(China Securities Regulatory Commission)or the SWS(Shenyin Wanguo Securities)industry classification standard,the difference of the rate of return of the No.10 group of Group 1 becomes smaller,the difference between the two is 22.57%(CSRC),24.35%(SWS),are less than 30.12%.From the above,there is a significant size effect in China's stock market,and by affecting the rate of return on stocks and thus affecting the size effect,the industry weakens the size effect in China's stock market.