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Are Small Cap Stocks Influenced Similarly and by the Same Economic Indicators as Large Cap Stocks? An Annotated Bibliography. - Essay Example

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Author : ooconner
Finance & Accounting
Pages 4 (1004 words)


The authors Thorbecke and Coppock conducted the study with the aim to verifying what percentage of the stock market variation can be explained by macroeconomic factors and monetary policy. …

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Are Small Cap Stocks Influenced Similarly and by the Same Economic Indicators as Large Cap Stocks? An Annotated Bibliography.

The study used monthly data from 1974 to 1989 for macroeconomic indicators and for the Fed monetary policy (as independent variables) and used 39 portfolios of 10 value weighted stocks from large cap and small cap categories (as dependent variables) to study the volatility in stock return. They found that 32% of the stock market return volatility could be explained by the monetary policy which is similar to the finding of Chang, Yeung, & Yip. (2000) below that macroeconomic indicators do not fully explain the stock market movements. It was also found that 96% of the cases showed that a tightening of the monetary policy (reduced money supply) reduced stock returns. Further, the study found that while both small and large firms were harmed by the disinflationary monetary policy, only large firms benefited from expansionary monetary policy. The study illuminates the bibliographic topic by making a distinction between small and large cap stocks and the difference in effect of macroeconomic indicators on different stock categories.
The authors at the time of the study were Doctoral Students at the University of Pennsylvania. They studied the impact of a set of 21 economic indicators and followed a regression analysis approach to identify whether economic indicators could explain the stock market movements from 1997 to 1999. ...
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