# Measuring size risk in CAPM. How one could go about?

I am using valuation methods (e.g. CAPM) in order to measure some projects "baseline" return. I'm not using these measures for stocks returns, but to evaluate specific projects (e.g. dam constructions). I understand that there are methods to apply size in CAPM in stocks returns (e.g. measure the additional return of small companies), but I'm not sure if those methods apply to my problem.

If I were to measure a risk (return) associated to a project's size, what is the benchmark literature or the more appropriate method? For instance, how could I go about in order to measure a $\theta_i$ parameter in the following equation CAPM:

$$r_i = r_f + \beta_i(r_m-r_f) + \theta_i$$

Where $r_i$ is the asset's return, $r_f$ is the riskless return (e.g. 10 year bond's return), $\beta_i$ measures the risk of the asset and $r_m$ (e.g. SP500 return) measures the market return.

• I think you have identified a real problem with the "Size Risk" theory: it is difficult to apply outside the realm of stock returns. – Alex C Jul 1 '18 at 18:15
• What ad hoc suggestion you would consider? – John Doe Jul 2 '18 at 17:53