Open AccessCountry-Level Size Effects in International Asset Pricing
Author(s) -
Crina Pungulescu
Publication year - 2021
Publication title -
emerging markets journal/emerging markets journal
Language(s) - English
Resource type - Journals
eISSN - 2159-242X
pISSN - 2158-8708
DOI - 10.5195/emaj.2021.230
Subject(s) - emerging markets , context (archaeology) , financial market , capital asset pricing model , economics , market segmentation , asset (computer security) , monetary economics , market size , financial economics , business , econometrics , international economics , finance , geography , microeconomics , computer science , computer security , archaeology
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.