Resurrecting the size effect: Evidence from a panel nonlinear cointegration model for the G7 stock markets

Nicholas Apergis () and James Payne

Review of Financial Economics, 2014, vol. 23, issue 1, 46-53

Abstract: Firm size is known to be an important factor affecting stock returns. This study proposes a panel threshold cointegration model to investigate the impact of the size effect on stock returns for the panel of G7 countries: Canada, France, Germany, Italy, Japan, the U.K., and the U.S. over the period 1991:1–2012:12. The empirical analysis is based upon the nonlinear cointegration framework using the asymmetric ARDL cointegration methodology (Shin et al., 2011). This methodological approach permits a much richer degree of flexibility in the dynamic adjustment process toward equilibrium, than in the classical linear model. Our findings indicate the presence of asymmetric adjustment around a unique long-run equilibrium. In particular, the empirical analysis provides evidence of asymmetric effects between stock returns and the size effect, while controlling for the book-to-market ratio and the price-to-earnings ratio.

Keywords: Size effect; Stock returns; Panel threshold cointegration; G7 stock markets (search for similar items in EconPapers)
JEL-codes: C23 G10 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:23:y:2014:i:1:p:46-53

DOI: 10.1016/j.rfe.2013.08.003

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