Book-to-market and size as determinants of returns in small illiquid markets

The paper highlights the difficulties in adopting investment strategies designed to exploit book-to- market and size effects on the New Zealand share market, which is small and illiquid by world standards. The small number of suitable companies listed on the market, and the high return volatility of individual equities make it difficult to reliably achieve superior returns. Excess returns due to size and book-to-market are highly volatile on a period-by-period basis due to the high volatility of individual shares combined with small portfolio size, which limits diversi®cation.