Small versus Large Caps—Empirical Performance Analyses of Stock Market Indices in Germany, EU & US since Global Financial Crisis

Abstract

This academic paper applied different models in order to analyse the performance of several small cap and large cap indices for the German-, European- and US-market since the financial crisis in 2008. Thus, the period under consideration amounts to approx. 12 years. The research period starts in July 2008 and ends in August 2020. It was found, that an investment in the US large cap index outperformed the German as well as the European indices with regard to the Sharpe Ratio and Sortino Ratio. Furthermore, it has been proven that small cap indices in Germany and Europe outperformed their counterparts in terms of return, the large cap indices in terms of their risk/return profiles. For the US-market, this relationship turns. Thus, the large cap index represents the better investment compared to the small cap index. It can therefore be said that the small cap anomaly could only be detected on a country-specific basis. With regard to the maximum drawdown, it is evident that the German market implies a very similar risk to the American market. The European market again clearly beats the German and the US-market in terms of maximum drawdown and is therefore less risky