Size matters everywhere: Decomposing the small country and small industry premia

Abstract

We explore the country and industry size effects by decomposing market value into four components: short-term return representing momentum, long-run return representing reversal, composite issuance, and lagged market value. We examine the implications of this decomposition for the country and industry size premia within a sample of 51 equity markets for the years 1973–2017. We confirm a significant size effect across countries and uncover an industry size effect: small industries markedly outperform large industries. While the cross-sectional dispersion in market value is determined almost exclusively by the lagged market value component the country and industry size premia have two prmary drivers: lagged market value and long-run reversal. Our analysis also discovers an industry issuance effect and a remarkable January effect inboth country and industry returns. Finally we also shed some light on the vanishing small country effect in the last decade. © 2018 Elsevier B.V. All rights reserved.