Explanation:
The size effect anomaly refers to the empirical observation that small-cap stocks tend to outperform large-cap stocks on a risk-adjusted basis. This phenomenon is attributed to factors such as higher growth potential and lower liquidity premiums associated with smaller companies. Options A and B are incorrect because they contradict the observed outperformance of small-cap equities.
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The size effect anomaly is observed when, on a risk-adjusted basis, equities of small-cap companies tend to:
A
Underperform equities of large-cap companies.
B
Perform similarly to equities of large-cap companies.
C
Outperform equities of large-cap companies.
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