| Abstract [eng] |
During the COVID-19 pandemic, a surge in activity among non-professional investors reshaped the investment landscape. This period was marked by an increase in emotionally driven decisions and interest in unconventional investment strategies, such as investing based on stock market anomalies. Anomalies like the size effect challenge the efficient market hypothesis by suggesting that certain patterns may persist over time and offer investors an advantage. Anomaly analysis becomes especially relevant during periods of market instability when information is not reflected in prices accurately or promptly. The first chapter of the thesis addresses the issue of stock market anomalies in the Baltic stock markets. It discusses the differences in efficiency between developed and emerging markets, the impact of financial and geopolitical instability, and the significance of anomalies for investors, explaining why their study is important. This chapter lays the theoretical groundwork and justifies the research’s relevance by emphasizing the lack of studies in the Baltic context and the need for further investigation. The second chapter provides an in-depth overview of the theoretical aspects of stock market anomalies. It begins by introducing the efficient market hypothesis, its different forms, and key supporting and opposing arguments. It then explores empirical findings, types of anomalies, and their potential causes. This chapter also discusses investor behavior factors that may contribute to market inefficiency, with a particular focus on the size effect anomaly. The third chapter outlines the research methodology. It describes the selected time period, data sources, the principles of portfolio formation, and the application of the capital asset pricing regression model. It also details how companies were categorized by size, how portfolios were formed, and what statistical methods were used to determine the existence of the anomaly. This section offers a clear picture of the research model and the study process. The fourth chapter presents and analyzes the empirical results. The size effect anomaly in the Baltic stock market was examined over the 2014–2024 period, revealing that the anomaly was not consistent. It was clearly present in the periods of 2014–2017 and 2020–2021. During 2014–2017, small-cap portfolios significantly outperformed both large-cap portfolios and the market index, with a positive and statistically significant alpha. In 2020–2021, although the differences in average returns were not statistically significant, the regression results showed a positive and significant alpha, indicating abnormal returns. However, for the full 2014–2024 period and during 2018–2019 and 2022–2024, the anomaly was not observed – returns were insignificant or lower, and alphas were negative or statistically insignificant. The size effect identified during 2014–2017 and 2020–2021 contradicts the assumptions of the efficient market hypothesis. The anomaly could have resulted from market inefficiencies, information asymmetry or investor behavior. The stable economic climate in 2016–2017 encouraged greater risk tolerance, while post-pandemic recovery in 2020–2021 led investors to focus on smaller companies. While the size effect may offer profit opportunities in smaller markets, investors must be cautious of related risks – higher volatility, limited information, liquidity issues, and the inconsistent manifestation of the anomaly itself. |
