We explore the country and industry size effects by decomposing market value into four components: short-term return, representing momentum; long-run return, representing reversal; composite issuance; and lagged market value. We examine the implications of this decomposition for the country and industry size premia within a sample of 51 equity markets for the years 1973–2017. We confirm a significant size effect across countries and uncover an industry size effect: small industries markedly outperform large industries. While the cross-sectional dispersion in market value is determined almost exclusively by the lagged market value component, the country and industry size premia have two primary drivers: lagged market value and long-run reversal. Our analysis also discovers an industry issuance effect and a remarkable January effect in both country and industry returns. Finally, we also shed some light on the vanishing small country effect in the last decade.

Keywords: country size effect, industry size effect, small country premium, size premium, asset pricing, international investment, return predictability, decomposition

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