Size effect: A cross-sectional analysis

This paper investigates the “size effect” on stock return in Indian equity market. The sample for the purpose of study consists of 250 companies forming part of BSE 500 equity index. A study period of seven years, i.e. from October 2003 to September 2010 has been considered. Further the whole period has been divided into two non-overlapping periods i.e. October 2003 to December 2007 and January 2008 to September 2010. The basic data for the study consists of month-end closing share prices collected from the Prowess database maintained by Center for Monitoring Indian Economy. Jensen alpha, Treynor and Sharpe measures have been computed along with portfolio standard deviation, average rate of return and mean excess return of portfolios. The study concludes that investors are unable to earn abnormal returns by investing in low market capitalization stocks. Market portfolio performed better than large cap portfolios.