Size Premium
An additional cost-of-equity premium added to reflect the empirical excess return small-cap stocks have historically delivered over large-caps after controlling for beta. Sourced from published Duff & Phelps Size Premia Reports, which decompose the premium into size-decile buckets. Ranges from ~0% for the largest decile to 150-300 bps for micro-caps. The size premium is one of the most consistently omitted inputs in vendor-default DCF models and the most consistent reason vendor-default WACC understates the true cost of equity on small-cap targets.
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Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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