“Beta†with “Size Premium†an Augmented Approach in the Frontier Equity Market: Evidence from Dhaka Stock Exchange

Mahfuza Khatun and K. M. Zahidul Islam

Journal of Applied Finance & Banking, 2022, vol. 12, issue 1, 5

Abstract: Traditionally, firm size has adopted in numerous heuristic asset pricing models as a determining factor of expected stock returns. So far as like systematic risk “beta†, there is diminutive consensus over the magnitude and firmness of the “size†premium. Converging on the controversy this article attempts to examine the traditional Capital Asset Pricing Model (CAPM) and “size†augmented CAPM in the Dhaka Stock Exchange (DSE). The goal of this article is to examine the impact of an overall market factor and factor related to the firm size risk on expected stock returns at the portfolio level. Our sample encompasses non-financial stocks listed in DSE, with daily observations starting from January 2014 to December 2018. Depending on Market Capitalization and Book-to-Market Ratios we construct nine different portfolios, Ordinary Least Square (OLS) regression methodology is used to examine the models. Unlike common reckoning, we observe the strong existence of the “size†effect in frontier equity market DSE and has a tangible impact on explaining expected stock returns at the portfolio level. Additionally, the “size†augmented Capital Asset Pricing Model explains DSE better than the standard CAPM, may indeed be a good tool for a realistic assessment of the expected asset returns, and can improve the description of equilibrium in the Frontier equity market DSE.  JEL classification numbers: E44, G11, G12.

Keywords: Capital Asset Pricing Model (CAPM); Size Premium; Frontier Equity Market. (search for similar items in EconPapers)
Date: 2022
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