Economic Cycle, Economic Shocks and Small-Firm Effect: Evidence from China

摘要

Small-firm effect (SFE) has been confirmed widespread in stock market. How to identify SFE has been become an important investment strategy. The study makes empirical analysis on SFE during different economic circles in China. We also reveal the response of SFE to economic shocks with Vector Auto-Regression model. The result shows that there is a long-term SFE which is not significant in Chinese stock market. SFE is relatively significant along with bigger volatility under conditions such as higher interest rate, higher economic growth, increasing inflation rate, the slower exchange appreciation and modest fluctuations of stock market. The volatility of stoke market pay the biggest impact on SFE, followed by the exchange rate. On the contrary, the impact from inflation rate and gross domestic product is weaker. The impact of shock from exchange rate and interest rate lasts about 10 months while other variablesȁ9; impact lasts within 6 months.