Keyword

Zimbabwe Stock Exchange, firm size; portfolio, stock returns.

Abstract

The objective of the study is to investigate the relationship between firm size and stock returns for firms listed on the Zimbabwe Stock Exchange (ZSE) between June 2009 and July 2013. We adopt the regression model employed by Banz in 1981, with innovations. The regression is based on constructed portfolios, with market capitalization as the basis for portfolio construction. The portfolios comprise at most 5 stocks, and stocks are sorted in ascending order by market capitalization for selection into portfolios. The sample period spans from June 2009 to July 2013. We select the sample period beginning from 2009 because that is when the government of Zimbabwe demonetized the Zimbabwean dollar and adopted a basket of foreign currencies as legal tender. The data prior to 2009 is also distorted by hyperinflation and therefore is not reliable. The sample size covers 64 companies listed on the ZSE, of which 60 are industrial and 4 are mining companies. We find that the estimated coefficient for the firm size factor is not significant at the 5% level of significance. Therefore, firm size has a positive yet insignificant effect on stock returns for companies listed on the ZSE for the period June 2009 to July 2013. Contrary to the general empirical findings, larger firms on the ZSE tend to exhibit higher risk-adjusted returns than smaller firms.


Full Text : PDF
References
  • Michailidis G, Tsopoglou S, Papanastasiou D, Mariola E. Testing the capital asset pricing model (CAPM): The case of the emerging Greek securities market. International Research Journal of Finance and Economics. 2006; 4:78-91.
  • Yang X, DonghuiX, Testing the CAPM model: A study of the Chinese stock market. Master Thesis. UMEA School of Business.2006.
  • Javid AY, Ahmad E. Testing multifactor capital asset pricing model in case of Pakistani market. Retrieved
  • From http://mpra.ub.uni-uenchen.de/37341/1/MPRA_paper_37341.pdf. 2006
  • Nikolaos L. An empirical evaluation of CAPM’s validity in the British stock exchange. International Journal of Applied Mathematics and Informatics. 2009; 3(1):1-8.
  • Krish M. Validity of capital asset pricing model & stability of systematic risk (beta): An empirical study on Indian Stock Market. Retrieved from http://dx.doi.org/10.2139/ssrn.1708463. 2010.
  • Mazviona BW. Testing the capital asset pricing model after currency reform: The case of Zimbabwe Stock Exchange, South East Asia Journal of Contemporary Business, Economics and Law. 2013; 3(1):22-29.
  • Grinblatt M, Titman S. Financial markets and corporate strategy. Boston. McGraw-Hill Irwin; 2002.
  • Griffin JM, Lemmon ML. Book-to-market equity, distress risk, and stock returns.Journal of Finance. 2002; 57(5):2317-2336.
  • Penman SH, Richardson SA, Tuna I. The book-to-price effect in stock returns: Accounting for leverage. Journal of Accounting Research. 2007; 45(2):427-467.
  • Bali TG, Demirtas KO, Tehranian H. Aggregate earnings, firm-Level earnings, and expected stock returns. Journal of Financial and Quantitative Analysis. 2008; 43(3):657-684.
  • Hou K, Robinson DT. Industry concentration and average stock returns. Journal of Finance. 2006; 61(4):1927-1956.
  • Israel R, Moskowitz TJ. The role of shorting, firm size, and time on market anomalies. Journal of Financial Economics. Retrieved from http://dx.doi.org/10.1016/j.jfineco.2012.11.005. 2013.
  • Wu H. The value and size effect-Are there firm-specific-risks in China’s domestic stock markets? International Journal of Economics and Finance. 2011;3(3):26-37
  • Kumar M, Sehgal S. Company characteristics and common stock returns: The Indian experience. Investment Management and Financial Innovations. 2004; 4:89-99