Interactions of returns and volatilities among different sizes of stocks: a Survey in Tehran Stock Exchange

Abstract

This paper investigates return and volatility spillover effects between the small, medium and large size firms using the multivariate GARCH framework (By size we mean a company's value on the stock market: the number of shares it has outstanding multiplied by the share price. This is known as market capitalization, or cap size). Using the monthly data from January 1995 to March 2006, we find that return and volatility transmission mechanisms between large and small firms in Tehran Stock Exchange market are asymmetric. In particular, there are significant spillover effects in returns from the portfolio of smaller stocks to the portfolio of larger stocks. For volatility, there is also evidence of limited feedback from the portfolios of smaller stocks to the portfolios of larger stocks.