Size Premium Question regarding, question, returns, additional

bleach

hey guys,

I hope your preparations for the exam are going well.

I have a quick question regarding Size Premium, an additional risk premia over the CAPM Required Rate of Return formula. It says that small-cap stocks result in excess returns over large-cap. How so? is there a fundamental reasoning behind this or is just due the law of supply and demand, i.e. lesser number of shares outstanding for a small-cap than a large-cap?!

thanks in advance

random_walker47

Hank moody is right, very nice username, BTW.

You can search for Fama/French research online, look for a 1992 paper.