Does the Size Premium Apply to Countries?

Does the Size Premium Apply to Countries? via Gerstein Fisher

Since 1981, the “size premium,” or the tendency for smaller-capitalization securities to outperform their larger-cap counterparts, has been extensively documented in financial literature in the United States.[1] Some studies have extended this research and reported that the size effect applies for country indices as well. Gerstein Fisher conducted research on the relationship between aggregate country equity market capitalizations and country-level market index returns and explored how a market-cap weighted international portfolio can be improved by limiting the weight of larger countries, such as Japan and the United Kingdom, and redistributing weights to smaller countries.

For our study, we examined a capitalization-weighted basket of developed-market country indices...