Published Online:January 2026
Product Name:The IUP Journal of Applied Finance
Product Type:Article
Product Code:IJAF020126
DOI:10.71329/IUPJAF/2025.32.1.32-56
Author Name:Savita Devi and Ramesh Chander
Availability:YES
Subject/Domain:Finance
Download Format:PDF
Pages:32-56
The study examines various measures and sources of size premium in the Indian stock market. The sample contains the data of all companies traded on the NSE 500 index. Asset pricing multifactor models are used to examine the sources of size premium. The results reveal that all size measures provide a significant size premium, but there is a significant and higher size premium based on market size measure, as compared to other size measures. Further, all multifactor models are not able to fully describe return patterns on size-sorted portfolios. The main problem for the size-sorted portfolios is the abnormal returns on the smallest-size portfolio. Thus, the size pattern is not fully described by all possible risk factors considered in this study. These results are beneficial to individual investors, FIIs, domestic traders, regulators, and policymakers, and also to small investors and mutual funds for portfolio creation and performance evaluation.
The negative relationship between the market value of the common equity of a firm and security returns, when observed over a long period, is known as size effect. What it means is that over long periods, stocks of smaller firms tend to produce larger returns than stocks of larger firms. This anomaly is hence sometimes called small-cap effect or small-firm effect.