Country-Level Size Effects in International Asset Pricing

Authors

  • Crina Pungulescu Institute for Economic Forecasting - National Institute of Economic Research and Romanian Academy

DOI:

https://doi.org/10.5195/emaj.2021.230

Keywords:

Finance, Market Size, Emerging Markets, Market Integration, Capital Controls

Abstract

This paper investigates whether small markets offer higher risk-adjusted expected returns using a large set of developed and emerging markets over a time span of up to four decades. The results show that expected returns are significantly lower in larger markets, an effect more pronounced in emerging rather than developed countries. The relationship between size effects and the level of market segmentation in emerging countries is further explored in the context of financial market integration. The size premium is strong and persistent over time independently of the (fading) segmentation premium documented in the literature. Markets size effects remain statistically and economically significant in the presence of various control factors and account for up to 1% per year in terms of expected returns in emerging countries.

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Published

2021-09-08

Issue

Vol. 11 No. 1 (2021)

Section

Articles

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