Does size effect exist in small markets?

Abstract

The purpose of this paper is to examine size effect in the Colombo Stock Exchange (CSE) which is an emerging market. The sample of the study consisted of 266 stocks including delisted companies from 1995 to 2008. Paired sample t-test was used to test hypotheses. Results reveal that firm size does not show any significant relation with stock returns during the entire period or sub periods. The asymmetric distribution of market capitalization of companies may be the reason for the none existence of size effect in CSE. This finding implicitly questions the relevancy of Fama and French (1993) three factor model to CSE data