Time Varying Size and Liquidity Effects

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Electronic copy available at: http://ssrn.com/abstract=1566252 1 Time varying Size and Liquidity effects in South Asian Equity Markets: A study of blue-chip industry stocks Bruce Hearn*  University of Leicester Abstract This paper contrasts the performance of the Capital Asset Pricing Model (CAPM) augmented by size and liquidity factors with its time varying coefficient counterpart using a unique market universe compiled from constituent stocks of blue chip indices BSE-100 (India), KSE- 30 (Pakistan), DSE-20 (Bang ladesh) and Dow Jone s Titans (Sri Lanka). The evidence suggests that substantial size and liquidity effects are present in all markets with the sole exception of Sri Lank a. Time varying liquidity be ta profiles reveal that the financial sectors of all South Asian markets have been affected by the 2008 financial crisis with exception of Sri Lanka where the market is influenced by the prolonged civil war. JEL class ification: G11, G12, G15, O55 Keywords: Liquidity, CAPM, Kalman filter, Emerging Financial Markets, South Asia * Corresponding author: School of Management, University of Leicester, Ken Edwards Building, Leicester. UK. LE1 7RH. Tel: 44(0)116 252 5520. Email: [email protected]  

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