Bigger isn’t always better : A twenty-one-year study of the size effect on the Oslo Stock Exchange

Abstract

Our analysis reveals an average monthly size effect of 1.29 percent on the Oslo Stock Exchange from 2000 to 2020, a significance that persists after adjusting for various systematic risk factors. Despite substantial exposure to the Small Minus Big (SMB) factor, our findings suggest it cannot fully account for the observed effect. Our liquidity analysis indicates a tendency for liquid stocks to outperform illiquid stocks of similar size, although the evidence is inconclusive. Examination of liquidity risk demonstrates that the size effect is exposed to systematic liquidity risk, yet conclusive results are hindered by robustness concerns and potential model biases. Our investigation reveals an average size effect in January of 12.08 percent and no significant returns observed from February to December. This highlights that the size effect is concentrated exclusively in January. Furthermore, indications suggest that market turmoil and uncertainty impact the effect, although conclusive results cannot be ascertained. Lastly, we find a negative correlation between market liquidity and the size effect, posing potential implications for the execution of trading strategies based on the size effect and offering insight into the persistence of the effect.