Size Effect in Indian Stock Market: Some Empirical Evidence

Journal of Business Perspective, Vol. 9, No. 4, pp. 27-42, December 2005

38 Pages Posted: 24 May 2008

See all articles by Sanjay Sehgal

Sanjay Sehgal

University of Delhi

Vanita Tripathi

Department of Commerce, Delhi School of Economics,University of Delhi, India; University of Delhi India - Delhi School of Economics - Department of Commerce

Abstract

In this study we attempt to test if there is a size effect in Indian stock market. The data comprises of top 482 Indian companies for the period 1990-2003. We find a strong size premium using six alternative measures of company size viz. Market capitalization, Enterprise Value, Net Fixed Assets, Net Annual sales, Total Assets and Net Working Capital. Further the size based investment strategy seems to be economically feasible as it provides extra normal returns on risk adjusted basis. Frequent re balancing of size based portfoilo is however found to be undesirable. The size effect does not seem to be owing to any seasonality or business cycle factors. The study has strong implications for mutual funds managers, investment analysts as well as small investors who are continuously on lookout for trading strategies that beat the market. The presence of a strong size premium also raises doubts about the informational efficiency of Indian equity market.

Keywords: Size effect, Market capitalization, Seasonality effect, Business cycle effect

JEL Classification: G12, G14

Suggested Citation

Sehgal, Sanjay and Tripathi, Vanita and Tripathi, Vanita, Size Effect in Indian Stock Market: Some Empirical Evidence. Journal of Business Perspective, Vol. 9, No. 4, pp. 27-42, December 2005, Available at SSRN: https://ssrn.com/abstract=1134510

Sanjay Sehgal

University of Delhi ( email )

University Road
Delhi, 110 007
India

Vanita Tripathi (Contact Author)

University of Delhi India - Delhi School of Economics - Department of Commerce ( email )

Department of Commerce
Delhi University
Delhi, 110007
India

HOME PAGE: http://people@du.ac.in~vtripathi/

Department of Commerce, Delhi School of Economics,University of Delhi, India ( email )

Department of Commerce, Delhi school of Economics,
Delhi, Delhi 110007
India

HOME PAGE: http://people@du.ac.in~vtripathi/