The increasing frequency and severity of economic crises over the last decade have renewed interest in understanding the behavior of financial markets during periods of extreme uncertainty. The COVID-19 pandemic, the energy crisis, the war in Ukraine, and broader geopolitical instability have created an environment of heightened volatility, significantly affecting stock returns and investors’ perceptions of risk. In this context, understanding the determinants of systematic risk has become particularly important for both academic research and investment decision-making.
One of the factors that has attracted considerable attention in the financial literature is firm size, commonly measured by market capitalization. The relationship between size, risk, and return has been the subject of extensive empirical investigation since the early 1980s. Banz (1981) introduced the so-called “size effect,” arguing that small-capitalization stocks tend to generate higher returns than large-cap stocks. These findings were later supported by Reinganum (1981) and Keim (1983). Subsequently, Fama and French (1992) incorporated firm size as a key factor in their multifactor asset pricing model, suggesting that market capitalization plays a significant role in explaining differences in stock returns.
Despite the extensive body of research, the international literature does not provide conclusive evidence regarding the role of firm size during periods of economic crisis.
The purpose of this paper is to investigate the relationship between firms’ market capitalization and the sensitivity of their stock returns to economic disturbances. Specifically, the study examines the extent to which firm size, as reflected by stock market capitalization, affects systematic risk (beta coefficient) and stock performance during periods of economic crisis.
Within this framework, the present study empirically examines the relationship between systematic risk and market capitalization in the Athens Stock Exchange during the period 2019–2024, a period characterized by successive economic and geopolitical crises. The empirical analysis focuses on six listed companies representing different capitalization categories. Specifically, the sample consists of four large-cap stocks from the banking sector and two smaller-cap stocks from other productive sectors of the Greek economy.
To investigate the relationship between risk and return, the study employs the Single Index Model (SIM), while the model parameters are estimated using the Ordinary Least Squares (OLS) method based on daily stock returns and the Athens Stock Exchange General Index. The analysis focuses on the beta coefficient as a measure of systematic risk, the coefficient of determination (R²), and the evolution of stock returns throughout the examined crisis periods.
The main objective of this study is to determine whether market capitalization acts as a factor of resilience or, alternatively, as a factor of increased exposure to systematic risk during periods of economic instability, with particular emphasis on the role of the banking sector within the Greek capital market.
Overall, the findings of the study suggest that the impact of economic shocks on stock returns is not determined solely by the size of the company. On the contrary, it seems that the industry, the degree of internationalization and the interconnection with the financial system, play a decisive role in shaping investment risk.
In particular, in the case of the Greek market, capitalization does not automatically function as a resilience factor, as large banking stocks appeared more exposed to systematic risk during the crises.
The conclusions of this research have important implications for investors and portfolio managers, as they highlight the need to assess risk beyond simple categorizations, based on capitalization. At the same time, they provide useful indications for economic policymakers regarding the role of the banking sector in the transmission of exogenous economic shocks to financial markets.