Firm Size and Turn-of-the-Year Effects in the OTC/NASDAQ Market




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    • Lamoureux is from John M. Olin School of Business, Washington University in St. Louis. Sanger is from College of Business Administration, Louisiana State University. This work was completed while Lamoureux was at Louisiana State University. An earlier version of this paper was presented at the 1988 Western Finance Association meetings. We are grateful to Glenn Boyle, Steve Buser, K. C. Chan, Bruce Lehmann, René Stulz, and an anonymous referee for helpful comments and suggestions. Any remaining errors are our responsibility.


This paper examines the turn-of-the-year effect, the firm size effect, and the relation between these two effects for a sample of OTC stocks traded via the NASDAQ reporting system over the period 1973–1985. We find results similar to those based solely on listed stocks. The importance of these findings stems from the existence of nontrivial differences between the characteristics of the OTC/NASDAQ sample and the samples of listed firms examined previously in the literature. We also find that NASDAQ quoted bid-ask spreads are highly negatively correlated with firm size, are not highly seasonal, and are large enough to preclude trading profits based upon a knowledge of the seasonality of small firms' returns.