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Firm Size and Cyclical Variations in Stock Returns
Author(s) -
PerezQuiros Gabriel,
Timmermann Allan
Publication year - 2000
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00246
Subject(s) - economics , collateral , recession , collateralized debt obligation , business cycle , imperfect , econometrics , stock (firearms) , great recession , stock market , monetary economics , financial economics , finance , labour economics , macroeconomics , mechanical engineering , paleontology , linguistics , philosophy , horse , biology , engineering
Recent imperfect capital market theories predict the presence of asymmetries in the variation of small and large firms' risk over the economic cycle. Small firms with little collateral should be more strongly affected by tighter credit market conditions in a recession state than large, better collateralized ones. This paper adopts a flexible econometric model to analyze these mplications empirically. Consistent with theory, small firms display the highest degree of asymmetry in their risk across recession and expansion states, which translates into a higher sensitivity of their expected stock returns with respect to variables that measure credit market conditions.