On the impact of firm size on risk and return: fresh evidence from the American stock market over the recent years

Abstract

According to the size effect, small cap securities generally generate greater returns than those of large cap securities. Recent studies have however suggested that for certain periods, size cannot be considered as a relevant explanatory variable, and therefore as an anomaly. Our study, based on the American stock market, confirms that there is indeed a size effect applicable to the values of the Russell 3000 index. However, when considering the American market as a whole, the size effect is reversed.