Comparing Small-Cap and Large-Cap Volatility with Return Dispersion

Summary

The document addresses the claim that small-cap stocks are more volatile than large-cap stocks and suggests comparing the standard deviations of their returns, a common measure of volatility. It gives an illustrative comparison between a large-cap market ETF and a small-cap ETF, reporting a higher annual standard deviation for the small-cap example.

This is a basic empirical check that can help a researcher frame the question and identify relevant data: compute return dispersion over a stated period for comparable small- and large-cap groups. However, the response does not provide a research paper, define the measurement window, discuss how the ETFs are constructed, or control for differences in sector exposure and other factors. The cited figures are a snapshot rather than broad evidence that the relationship holds across periods or markets, so the comparison should be treated as an illustration, not a definitive test.

Key ideas

• Return standard deviation is a common way to compare the volatility of stock groups.
• The example reports a higher annual standard deviation for a small-cap ETF than for a large-cap ETF.
• A meaningful comparison should specify the return series and measurement period.
• A single ETF comparison does not establish that small caps are always more volatile.

Tags

# Volatility of stocks small cap vs large cap


# Volatility of stocks small cap vs large cap












I read that small cap stocks are more volatile than large cap stocks. Now I am looking for sources (e.g research papers or similiar) with empirical evidence for this proposition but I can't find any (maybe I am not searching correctly, but I come from a more mathematical background so bear with me). Can anyone give some papers or some hints what and where to search?

## Answer by rmrndr (score 5)

https://quant.stackexchange.com/a/37075

If you compute the standard deviation of returns (wich is the common measure of volatility) of small-caps stocks vs. large-cap stocks. Small caps stocks usually show a higher volatility of price returns.

If you go to morningstar.com, search for SPY (S&P 500, large cap ETF) you'll see an annual standard deviation of around 10%. In comparaison, IWM (Russell 2000, Small Cap ETF) have a standard deviation of around 14%.

You don't need a research paper to prove this.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.