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Firm Size, Beta and Stock Returns: Evidence from Germany and the United Kingdom
Mirela Malin 1 and Madhu Veeraraghavan 2
Abstract
This paper analyses whether firm size in addition to beta, can explain the variation in stock returns for equities listed in the German and UK stock markets. Our findings show the market factor to be statistically significant for all six portfolios in both markets. As far as the size effect is concerned we document a small firm effect in Germany and do not find a size effect for equities listed in the United Kingdom. Our findings also show that low beta stocks outperform high beta stocks, and therefore we suggest that investors should invest in the overall market portfolio and stock with low betas to derive superior returns.
JEL Classification: G12, G15
Keywords: Small firm effect, Beta, Multifactor Models
1. Department of Accounting, Finance and Economics, Griffith University, Australia.
2. Corresponding Author, Department of Accounting and Finance, Monash University, Clayton Campus, Victoria 3800, Australia. Tel: +61 3 9905 2432, Fax: +61 3 9905 5475, E-mail: Madhu.Veeraraghavan@BusEco.monash.edu.au
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