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Market Capitalization

In: Risk and Return in Asian Emerging Markets

Author

Listed:
  • Nusret Cakici
  • Kudret Topyan

Abstract

As defined by Crain (2011), size effect1 in finance refers to the observation that smaller firms have higher returns than larger ones, on average, over long horizons. Banz (1981), for the first time, evaluated the relationship between the total market value of the common stock of a firm and its return and showed that for the period 1936–1975, the common stock of small firms had higher risk-adjusted returns than the common stock of large firms. It is thereafter considered that firm size might be a proxy for risk and, therefore, a potentially important return predictor. Smaller firms, in general, are much more risky compared to larger firms, leading to lower prices and higher returns.

Suggested Citation

  • Nusret Cakici & Kudret Topyan, 2014. "Market Capitalization," Palgrave Macmillan Books, in: Risk and Return in Asian Emerging Markets, chapter 0, pages 13-27, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-137-35907-0_2
    DOI: 10.1057/9781137359070_2
    as

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