Stock market efficiency, the small firm effect and cointegration

Patricia L. Chelley-Steeley; Eric J. Pentecost

doi:10.1080/758518672

Stock market efficiency, the small firm effect and cointegration

Patricia L. Chelley-Steeley, Eric J. Pentecost

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Abstract

The cointegration methodology commonly used for testing the efficiency of the foreign exchange market is applied to a sample of UK share prices. Specifically we test for static market efficiency in the share prices of small and large firms, using monthly data from January 1975 to December 1989. The empirical findings provide evidence of market efficiency for portfolios of large firms but of inefficiency for small firm portfolios. These results are indicative of a small firm effect in the UK stock market.

Original language	English
Pages (from-to)	405-411
Number of pages	7
Journal	Applied Financial Economics
Volume	4
Issue number	6
DOIs	https://doi.org/10.1080/758518672
Publication status	Published - 1994

Keywords

cointegration methodology
efficiency
foreign exchange market
share prices
static market efficiency

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10.1080/758518672

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AB - The cointegration methodology commonly used for testing the efficiency of the foreign exchange market is applied to a sample of UK share prices. Specifically we test for static market efficiency in the share prices of small and large firms, using monthly data from January 1975 to December 1989. The empirical findings provide evidence of market efficiency for portfolios of large firms but of inefficiency for small firm portfolios. These results are indicative of a small firm effect in the UK stock market.

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Stock market efficiency, the small firm effect and cointegration

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