Utjecaj veličine poduzeća na prinose dionica: pogled na dioničko tržište Srednjoistočne Europe
The size effect in equity returns: evidence from the Central and Eastern Europe stock market

Summary/Abstract: This paper examines the presence and strength of the firm size effect on returns of selected stocks that represent the equity market in Central and Eastern Europe (CEE). In the empirical research monthly stock returns were used for the period from January 2011 till December 2020. The data sample consists of 46 stocks that are constituents of at least one of the three regional stock indices quoted on the Vienna Stock Exchange: the CECE EUR, the CECE MID EUR and the CECE SRI EUR index. Thus, research covers 8 countries: Poland, Hungary, the Czech Republic, Slovenia, Croatia, Romania, Bulgaria and Serbia. The methodology framework consists of two steps. The first step is related to the construction of the two size-mimicking portfolios, which take into account firms’ market capitalisation. In general, the paper follows an estimation process of the SMB variable of the three-factor Fama-French (1993) model. In this research, the SMB variable quantification is defined as a difference in returns of the two size-mimicking portfolios. The second step deals with a statistical test of the small-firm size premium. Research results show the presence of a statistically significant risk premium for small companies at 0.834 % on average per month for the observed period. This indicates that CEE portfolio investors and financial managers should not neglect this firm-size effect when estimating the required rate of return on stocks.

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