Evidence of the Size Effect on Nasdaq Nordic
Hirvonen, Anastasia (2020)
Hirvonen, Anastasia
2020
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Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2020060115903
https://urn.fi/URN:NBN:fi:amk-2020060115903
Tiivistelmä
This Bachelor’s thesis examines the presence of such a renowned market anomaly as the size effect on Nasdaq Nordic equity markets. The main objective of the study was to find evidence as to whether small capitalization companies outperform big capitalization companies on Nasdaq Nordic.
The study is made up of a theory section and an empirical section. The theory section discusses the past studies on the size effect and other market anomalies. The empirical part focuses on finding evidence of the presence of the size effect on Nasdaq Nordic. The study was based on descriptive statistical methods. The indices values for small and big capitalization firms on Nasdaq Nordic were collected for up to a thirteen-year period ending in December 2019. The annual and monthly returns were calculated using the return data. The findings were analysed by using charts and comparing risk and return ratios with the help of Microsoft Excel.
The results of the study indicate that the size effect was present on Nasdaq Helsinki and Nasdaq Stockholm over the observed period. On Nasdaq Copenhagen, the size effect was not documented. The analysis also confirms that the size effect is strongest in January and that the big capitalization firms outperform the small capitalization firms in the down market. The latter results are supported by the studies presented in the theory section of this thesis.
The analysis showed that the size effect is present on at least few of Nasdaq Nordic equity markets and therefore could be explored by investors. Moreover, investors can additionally benefit by taking into account the presence of the January effect and the state of the economy. However, past returns do not guarantee similar returns in the future, and the size premium could disappear in the future.
The study is made up of a theory section and an empirical section. The theory section discusses the past studies on the size effect and other market anomalies. The empirical part focuses on finding evidence of the presence of the size effect on Nasdaq Nordic. The study was based on descriptive statistical methods. The indices values for small and big capitalization firms on Nasdaq Nordic were collected for up to a thirteen-year period ending in December 2019. The annual and monthly returns were calculated using the return data. The findings were analysed by using charts and comparing risk and return ratios with the help of Microsoft Excel.
The results of the study indicate that the size effect was present on Nasdaq Helsinki and Nasdaq Stockholm over the observed period. On Nasdaq Copenhagen, the size effect was not documented. The analysis also confirms that the size effect is strongest in January and that the big capitalization firms outperform the small capitalization firms in the down market. The latter results are supported by the studies presented in the theory section of this thesis.
The analysis showed that the size effect is present on at least few of Nasdaq Nordic equity markets and therefore could be explored by investors. Moreover, investors can additionally benefit by taking into account the presence of the January effect and the state of the economy. However, past returns do not guarantee similar returns in the future, and the size premium could disappear in the future.