The relationship between size, value, and market risk: Some evidence

This study examines the risk-return characteristics of common stock in Indian stock market. We propose vector autoregressive model, Granger-causality tests and variance decomposition analysis to find the nature of relationship that exists among the three factors (market risk, size, and value) proposed by Fama-French (1992). The empirical findings of our study indicate that market risk proxy has persistent effects on stock returns in Indian market. Moreover, a causal relationship is found to exist between market risk factor and non-market based measures. The results of the study are expected to provide better insights to investors in understanding the risk return characteristics that exist among the factors that affect stock prices. © Shijin S, G Arun Kumar, Sangamitra Bhattacharyya, 2007.