Size effect alive or dead: Evidence from European markets

Abstract

In this paper, we examine whether the size effect is present in four European markets viz. France, Germany, Spain and Italy. We also investigate whether the size effect can be explained through the sources as available in the literature. We employ prominent asset pricing models to ascertain if size anomaly in our sample countries passes the risk story. We find single-factor model i.e.capital asset pricing model to be still relevant in explaining size anomaly for Spain and Italy. We find FF3 factor model to be a suitable model to be explain for alphas in Germany, while we find that none of the asset pricing model is able to fully explain the size effect for France. Hence, we conclude that though size anomaly does not provide any opportunities to portfolio managers for making extra normal returns for their investors in three of the four sample countries. France, however, provides an opportunity to portfolio managers for exploiting size anomaly. Our findings have implications for portfolio managers, academia as well as regulators.

Keywords

• size anomaly
• european markets
• asset pricing