Performance of SMEs Stocks Portfolios at Bucharest Stock Exchange

In this paper we aim to comparatively analyze the performance of SMEs stocks portfolios, large-cap portfolios and the overall Romanian stock market as proxied by a self-constructed composite index. To perform this investigation, we will firstly construct the three alternative portfolios (I.e. Large-Cap, SME and Market or RM) and subsequently compute different risk-adjusted performance measures for each of them. The two active portfolios will be constructed by equal weighting the component stocks; which are firstly ranked on both market capitalization or Size and P/BV ratio and split in three equal groups by using tertiles. From the intersection of these two groups of thirds emerge nine portfolios, among which we are interested in the two low P/BV portfolios with extreme market values, that is the Small Size-Low P/BV portfolio (called the SME portfolio) and the Big Size-Low P/BV portfolio (called Large-cap portfolio).We report there is positive value to active portfolio management on the Romanian stock market, that the size-effect is present (smaller stocks have higher returns) and that investing in stocks of SMEs (or similar companies) achieves the best stock market performance as indicated by all computed risk-adjusted performance measures.