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Size, price-to-earnings and beta on the JSE Securities Exchange

Size, price-to-earnings and beta on the JSE Securities Exchange P van Rensburg* and M Robertson Size, price-to-earnings and beta on the JSE Securities Exchange 1. INTRODUCTION 2. LITERATURE REVEIW ". . . the main implication of the CAPM is that in market The small size effect documented by Banz (1981) is equilibrium, the value weighted market portfolio, M, is among the first observed empirical contradictions of the mean-variance efficient. The mean-variance efficiency of CAPM . Using the total market value of listed equity as M, in turn, says that: an indicator of firm size, Banz (1981) forms twenty-five test portfolios from two-way quintile sorts on size and market beta. The results of the two-way sorts show that (i) fJ, the slope in the regression of a security's return the average returns of small capitalisation stocks are too on the market return, is the only risk needed to high to be explained by their beta estimates and vice explain expected return; versa. Around the same time, Basu (1977, 1983) reports that both earnings-to-price and firm size are significant (ii) There is a positive premium for f3 risk. factors in determining average returns among US listed firms. He also shows that market beta is positively . . . evidence of http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Investment Analysts Journal Taylor & Francis

Size, price-to-earnings and beta on the JSE Securities Exchange

Investment Analysts Journal , Volume 32 (58): 10 – Jan 1, 2003
9 pages

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References (26)

Publisher
Taylor & Francis
Copyright
© 2003 Taylor and Francis Group, LLC
ISSN
2077-0227
eISSN
1029-3523
DOI
10.1080/10293523.2003.11082449
Publisher site
See Article on Publisher Site

Abstract

P van Rensburg* and M Robertson Size, price-to-earnings and beta on the JSE Securities Exchange 1. INTRODUCTION 2. LITERATURE REVEIW ". . . the main implication of the CAPM is that in market The small size effect documented by Banz (1981) is equilibrium, the value weighted market portfolio, M, is among the first observed empirical contradictions of the mean-variance efficient. The mean-variance efficiency of CAPM . Using the total market value of listed equity as M, in turn, says that: an indicator of firm size, Banz (1981) forms twenty-five test portfolios from two-way quintile sorts on size and market beta. The results of the two-way sorts show that (i) fJ, the slope in the regression of a security's return the average returns of small capitalisation stocks are too on the market return, is the only risk needed to high to be explained by their beta estimates and vice explain expected return; versa. Around the same time, Basu (1977, 1983) reports that both earnings-to-price and firm size are significant (ii) There is a positive premium for f3 risk. factors in determining average returns among US listed firms. He also shows that market beta is positively . . . evidence of

Journal

Investment Analysts JournalTaylor & Francis

Published: Jan 1, 2003

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