This thesis will be concerned with investigating the empirical characteristics of stock returns, forUKfirms which are distinguished by market value. The primary aimof thisworkis to identify whether there are differences between the behaviour of large and small firm retums. A substantial amount of attention has recently focused upon how firm size influences the behaviour of stock returns in US markets, but, the role that firm size might have in determining the behaviour of stock returns in UK markets has received very little attention. The aim of this thesis is to redress this imbalance. The first part of this study will be concerned with showing that the returns of small firms are more predictable than the returns of large firms. The second part of this study will show that the relationship between risk and return depends on firm size. The third and final part of this thesis will show that not only are the mean returns of large and small firms different but that there are also important differences in the conditional variances of large and small firms. In all three parts of this thesis, important differences between the behaviour of large and small firm returns are documented for the first time.