Dynamic price relationship between small and large stocks
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Asymmetric theories predict that information will flow from large stock prices to small stock prices. This paper examines whether the multivariate lead-Iag intraday relationship between large, medium and small stocks in Australia changes according to market trading conditions. The analysis applies recent time series techniques of unit root testing, multivariate Johansen-Juselius tests of cointegration, vector error-correction modelling (VECM), and forecast error variance decomposition (VDC). We find that the information environment faced by stock market participants is fluid and related to whether prices are generally rising or falling. During abearprice phase,large stocks provided the dominant price lead in the stock market. In a bull phase, however, the role of small stocks became more powerful, in both the short and long term, and their prices relatively more exogenous. We conclude that the increased independence of small and medium stocks during the bull price phase is related to an increase in information search, by analysts and market traders, induced by more favourable cost-benefit incentives.
Small stocks , Large stocks , Stock markets , Australia
Hodgson, Allan and Mohammed Masih, Abul Mansur and Masih, Rumi. (1999). Dynamic price relationship between small and large stocks. Accounting Research Journal, 12 (2), pp. 151-162.