Empirical Test of Size Effect in China Stock Market

In order to test the existence of ldquosize effectrdquo in stock market in China, which is probably affected by the reform of non-tradable shares of listed companies in 2005, a FM regression method is used in this paper. By choosing SSE and SZSE stocks from 2005 to 2007 as entire study samples, we inspect the relationship between the size and earnings. As a risk factor to impact rate of return, firm size is turned to logarithm. Then FM regression is done on the rate of return. Empirical result indicates that, different from previous studies, there is no ldquosize effectrdquo in Shanghai and Shenzhen A-share market between 2005 and 2007, which means ldquosize effectrdquo is indeed influenced by the reform of non-tradable shares of listed companies.