A Closer Look at the Size Effect in the Dhaka Stock Exchange (DSE)

Abstract

The tendency of small firms to produce more returns than large firms is often referred to as ‘size eflect“. While this eflect is evident in many research papers pursued in the context of developed markets, little attention is given to this efiect in a fledgling capital market like the DSE. In this backdrop, this paper investigates the existence of size effect in the DSE, Return behavior before and after the 1996 stock market crash is also taken into account to track whether or not investors have changed their views regarding size of firms. Results show that size eflect exists in the DSE; size-related risk, a measure of economy-wide risk factor, does explain the returns of portfolios of small and Zarge firms. Before the crash, big firms produced higher return than small firms, but after the crash, thefizrmer has lost‘ more than the latter.