Dr Mardy Chiah FIN30016 21S2
FIN30016 Individual Assignment 1:

Does size matter?
Evaluating the risk and return of size premiums.
The size effect/premium in stock returns is the phenomenon that small-cap stocks on average
outperform large-cap stocks over time. Therefore, the size premium can be inferred by the
portfolio return difference between a small-sized and a large-sized portfolio (i.e. small minus
big). In this assignment, you will evaluate the performance of the size premium across the
globe. Professor Kenneth French is one of the authors in Fama and French’s (1993) three-factor
model that incorporates a size premium. In his data library, he has shared historical returns for
various asset classes and portfolios, including the size premiums. In the Excel file titled ‘Size
premiums across regions’ attached to this assignment on Canvas, you are able to download the
monthly size premiums across six regions/countries:
1) Developed
2) Emerging
3) Europe
4) Japan
5) Asia-Pacific Excluding Japan
6) North America
That is, the number in each cell indicates the monthly size premium for that particular
country/region. You are also given the global market monthly premium named ‘Global Market’.
Based on the Excel spreadsheet indicated above, perform the following tasks. You are
encouraged to use Excel to perform the analyses. However, your analyses and discussion of
findings must be presented as a report in a Word/PDF format. The word limit for the report is
1500 words excluding Executive Summary, Table of Contents, Tables, Figures, and References.

1) Calculate the time-series average returns and standard deviations to the size premiums across
the six regions/countries. You should also consider the reward to risk ratios calculated as
premium divided by standard deviation. Over the sample period and regions/countries
considered, do you think that size matters in investment strategy? (20 marks)

2) Compare the performance of these size premiums with the global market premium over the
same period. Do they outperform or underperform the market? (5 marks)

3) Examine the time-series return pattern of these size premiums. Are there any specific periods
in which the size premiums outperform or underperform? Based on the time-series return
pattern, do you think market condition (e.g. boom or recession) plays a role in explaining the
return variation for the size premiums? (20 marks)

4) Conduct some literature review on academic articles on the size premiums. Based on your
review, identify two potential theories/reasons why small firms may outperform large firms.
Also, review the findings on past literature conducted on size premiums in the regions/countries
above. Is your finding consistent with the extant literature? (35 marks)

6) Structure and presentation of the report including referencing. (10 marks)

7) Writing style and grammar. (10 marks)