Transaction Cost and the Small Stock Puzzle: The Impact of Outliers in the NYSE, 1970-2000

Abstract

In this article we study the effect of transaction costs on asset prices. We examine the characteristics of the actual extreme performers (Outliers), their stock prices, and transactions cost and link them to firm size. The analyses is based on data from the COMPUSTAT tapes with valid data for the bid and ask prices and the CRSP samples of all firms listed in the NYSE, AMEX, and NASDAQ during the period 1970-2000. Once transaction costs are taken into account, no positive abnormal returns are found for small firms. Transaction costs account fully for both the abnormality and the recent size discountability.Outliers, Transaction Costs, Size discount, NYSE, AMEX, NASDAQ