Regularities in Australian Share Returns

Abstract

The inverse relation between total equity value and return is confirmed for Australian ordinary shares over the 1974-1984 period. We find this so-called size effect to be robust with respect to several technical methodological adjustments. In particular, the pattern persists when we account for: fluctuations in the returns of nominally riskless assets; varying levels of systematic risk of size ranked portfolios; the index selected to represent the common factor in the return generating mechanism; the form of returns, i.e., simple versus continuously compounded; possible initial mispricing of new issues; possible seasoning of new issues; shares that leave the data base for bankruptcy, winding up, or other reasons; the third moment of the return distribution; and the levels of portfolios' unsystematic risks. We do find several economic variables that seem in part to account for the magnitude of the size effect, viz., accounting for: yearly rather than monthly portfolio revision; nonsynchronous trading; and varying transactions charges, volume of information available, and liquidity between large and small firms.

Size and book-to-market factors in Australia

“…A similar finding has since been documented beyond the U.S., including in Australia. Beedles, Dodd & Officer (1988) show that the size premium in Australia is even more pronounced when portfolios are formed on the basis of deciles. This difference between returns on the small and large portfolios has now become the basis for one of the factors underlying the Fama-French three-factor model.…”

New evidence on the relation between stock liquidity and measures of trading activity

“…We incorporate two additional variables into our analysisabsolute monthly stock return and the thin trading measure proposed by Beedles, Dodd and Officer (1988).…”

“…ABSR is measured as the absolute value of a stock's monthly return. Beedles et al (1988) use the difference between the last price date and last trading date in a month to create a crude proxy for the proportion of missing daily returns. Specifically, the measure is defined as:…”

“…VOLUME is the aggregate trading volume. BEEDLES is the thin trading measure proposed by Beedles et al (1988). ABSR is the absolute stock monthly return.…”

Migration and its contribution to the size and value premiums: Australian evidence

“…To understand the central contribution of this study, let us first briefly examine the evidence on the size and value effects in Australia. Similar to the US findings, early studies document a size effect in Australia (Brown et al, 1983;Beedles et al, 1988;Anderson et al, 1990;Gaunt et al, 2000). In contrast, early research on the value effect is more limited due to the difficulty in obtaining accounting data that are linked to stock returns for listed Australian companies.…”