This paper examines the relationship between firm capitalization and stock returns in Hong Kong stock market. In particular the study looks at the effect of small capitalization on stock returns in the context of the marginal firm characteristics. Major attributes of marginal firm behavior tested are poor dividend pay-out and high financial leverage. While these features might be evident in bear periods in Hong Kong stock market, the results in general contradict the notion that investors have the tendency of buying large capitalization stock in bear market periods.