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Size Anomaly on the Taiwan Stock Exchange

An Alternative Test

This study uses the stochastic dominance theory, which is distribution-free, to examine the relationship between realised returns and firm size for companies listed on the Taiwan Stock Exchange between 1982 and 1999. The findings show that small-cap and large-cap portfolios outperform both medium-cap portfolios and the market, when investors are allowed to borrow and lend money at prevailing risk-free rates. The ‘traditional’ size effect exists only when investors are permitted to borrow and lend money at very high risk-free interest rates. As compared to mature markets, like in the US or UK, our findings also indicate that the widespread use of size in asset pricing is doubtful in emerging markets after 1980.

Key Words: Size anomaly • stochastic dominance theory • risk-free interest rate

Journal of Emerging Market Finance, Vol. 4, No. 1, 81-100 (2005)
DOI: 10.1177/097265270400400105


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