The size effect/premium in stock returns is the phenomenon that small-cap stocks on average outperform large-cap stocks over time. Therefore, the size premium can be inferred by the portfolio return difference between a small-sized and a large-sized portfolio (i.e. small minus big).

 

Question:

Conduct some literature review on academic articles on the size premiums. Based on your review, identify two potential theories/reasons why small firms may outperform large firms. Also the findings on past literature conducted on size premiums on any 6 regions of your choice that is Developed, Emerging, Europe, North America, Japan and Asia Pacific ex-Japan.

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The size premium also known as the smallcap effect has been a topic of interest in academic research Several theories and explanations have been put forth to understand why small firms may outperform ... View the full answer