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    Resurrecting the size effect: Evidence from a panel nonlinear cointegration model forthe G7 stock markets

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    Authors
    Apergis, Nicholas
    Payne, James
    Date
    2013
    Type
    Journal Article
    
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    Citation
    Apergis, Nicholas and Payne, James. 2013. Resurrecting the size effect: Evidence from a panel nonlinear cointegration model for the G7 stock markets. Review of Financial Economics. 23: pp. 46-53.
    Source Title
    Review of Financial Economics
    DOI
    10.1016/j.rfe.2013.08.003
    ISSN
    1058-3300
    URI
    http://hdl.handle.net/20.500.11937/30356
    Collection
    • Curtin Research Publications
    Abstract

    Firm size is known to be an important factor affecting stock returns. This study proposes a panel threshold cointegration model to investigate the impact of the size effect on stock returns for the panel of G7 countries: Canada, France, Germany, Italy, Japan, the U.K., and the U.S. over the period 1991:1–2012:12. The empirical analysis is based upon the nonlinear cointegration framework using the asymmetric ARDL cointegration methodology (Shin et al., 2011). This methodological approach permits a much richer degree of flexibility in the dynamic adjustment process toward equilibrium, than in the classical linear model. Our findings indicate the presence of asymmetric adjustment around a unique long-run equilibrium. In particular, the empirical analysis provides evidence of asymmetric effects between stock returns and the size effect, while controlling for the book-tomarket ratio and the price-to-earnings ratio.

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