This paper tests for a firm size effect in the Mexican stock market us
ing data from January 1987 to December 1992. Our initial tests indicat
e that average stock returns are positively related to market betas. W
e also find, however, that average returns are negatively related to f
irm size. To measure the effects on average return of betas that are u
nrelated to firm size, we examine portfolios formed on the basis of si
ze and beta. We find that beta is priced in addition to firm size for
the Mexican stock market, even after carefully separating the effects
of beta and size.