The impact of firm size on risk and return in the Brazilian stock market: A sectoral perspective

Abstract

The capital market theory explores the equilibrium relationship between risk and the expected return on risky assets. Building on this theory, the present study examines the impact of sectoral size (sectoral capitalization) on risk and expected return from 2000 to 2004 on a monthly basis. The study employs a multifactor model, utilizing the Arbitrage Pricing Theory and the ordinary least squares estimation method to analyze the effects of sectoral size on risk and return. The results suggest that firm size or sectoral size has an insignificant influence on firm or sectoral returns in the Brazilian stock market.

Keywords: Risk, Return, Firm Size, Arbitrage Pricing Theory, Brazilian Stock Market.