The Small-Country Effect Revisited

Abstract

In an earlier study, researchers showed that the smaller national equity markets in the MSCI Developed Markets universe returned 19.19% compounded annually during the years from December 31, 1975, through June 30, 1992. These results compare favorably with the 12.67% total compound return of the MSCI World Index during the same period. Moreover, the small markets had lower downside risk characteristics than the MSCI World Index. Now, more than 18 years later, the authors revisit the concept of investing in national equity markets based solely on their size as measured by their respective market capitalization. They cover the 40-year period from December 31, 1969, through December 31, 2009, more than doubling the test period of the 1993 study.