DUAL BETAS FROM BULL AND BEAR MARKETS - REVERSAL OF THE SIZE EFFECT

Significant firm-size-related differences in abnormal returns and syst ematic risks occur in bull and bear market months from 1926 to 1988. P otential differential return premiums between recessions and expansion s appear to be captured by the varying risk model and not the constant risk model. Using a dual-beta market model to adjust for risk differe nces in bull and bear markets, we find that large firm stocks on avera ge earn significant positive excess returns and small firm stocks earn significant negative excess returns. Superior performance of large fi rm stocks is even more pronounced outside January.