SMALL FIRM EFFECT - EVIDENCE FROM KOREAN STOCK-EXCHANGE

The objective of the paper is to examine the small firm and earnings' yield effects on the Korean stock returns during 1982-1988. We find th at smaller (or high E/P ratio) firms obtain higher risk-adjusted retur ns, on average, than larger (or low E/P ratio) firms. We also document that the existence of January effect in Korean stock returns. Unlike the findings for the US market, stock returns of small and as well as large Korean firms are found to be 2 or 3 times higher in January than the other months. However, the well known tax-loss-selling hypothesis can not be used to explained these anomalies because there are no cap ital tax or loss offsets in Korea.