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Why has the size effect disappeared?

Author

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  • Ahn, Dong-Hyun
  • Min, Byoung-Kyu
  • Yoon, Bohyun

Abstract

This paper explores why the size effect vanished after the early 1980s. We show that the size effects are significantly positive primarily at the bottom of the business cycles. More importantly, this dependency of the size effect on the business cycles is preserved even after the 1980s. Therefore, our findings suggest that while unconditional size effect has perished, the size effect conditional on the business cycles is alive and well. The less frequent occurrences of troughs, due to prolonged business cycle length, are shown to be responsible for the dissolution of the size effect.

Suggested Citation

  • Ahn, Dong-Hyun & Min, Byoung-Kyu & Yoon, Bohyun, 2019. "Why has the size effect disappeared?," Journal of Banking & Finance, Elsevier, vol. 102(C), pages 256-276.
    • Handle: RePEc:eee:jbfina:v:102:y:2019:i:c:p:256-276
    DOI: 10.1016/j.jbankfin.2019.02.005
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    2. Orbay Arkol & Asil Azimli, 2024. "Pricing the common stocks in emerging markets: The role of economic policy uncertainty," Modern Finance, Modern Finance Institute, vol. 2(1), pages 31-50.
    3. Byoung‐Kyu Min & Yuchao Xiao, 2021. "Momentum, Reversals, and Business Cycle Turning Points," Abacus, Accounting Foundation, University of Sydney, vol. 57(4), pages 679-708, December.
    4. Naresh Bansal & Robert A. Connolly & Chris Stivers, 2022. "Beta and size equity premia following a high‐VIX threshold," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(8), pages 1491-1517, August.
    5. Yin, Libo & Liao, Huiyi, 2021. "Big is brilliant: Understanding the Chinese size effect through profitability shocks," International Review of Financial Analysis, Elsevier, vol. 74(C).
    6. Wan, Die & Yang, Teng & Yang, Xiaoguang, 2021. "IPO relative difficulty, M&A option and size effect," Journal of Asian Economics, Elsevier, vol. 76(C).
    7. Tyler K. Jensen & Robert R. Johnson & Michael J. McNamara, 2019. "Funding conditions and insurance stock returns: Do insurance stocks really benefit from rising interest rate regimes?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(4), pages 367-391, December.
    8. Guo, Laite, 2023. "Two faces of the size effect," Journal of Banking & Finance, Elsevier, vol. 146(C).

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    More about this item

    Keywords

    Size effect; Business cycle duration;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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