Size Effect in Indian Stock Market : An Anomaly or a Methodological Artifact

The paper tests if the documented size effect in the Indian stock market is an anomaly with respect to market efficiency or an artifact with respect to data or methodology employed. The study employs two related datasets (one being held constant through the study period, the other being revised annually), both of which are subjected to two different calculations of returns: equal-weighted and value-weighted. The equal-weighted returns are calculated on both whole sample and trimmed sample. While calculating value-weighted returns, weights are based on either whole sample, trimmed sample or winsorized sample. The findings suggest that while the evidence of size effect is robust to the methods of returns calculation, it is not robust across datasets. This could imply that the so-called anomaly is rather an artifact of data selection and is limited to/caused by such class of stocks that do not qualify to be part of broad market index