"Ethanol molecules are much smaller in size than the water molecules" ? - Rather the reverse. In addition, the question is not about volumetric contraction but about an egzothermal effect - which in the case of mixing two strongly polar compounds (methanol and water) takes place. Regards,
Water molecules associate by H-bonds and methanol molecules also associate by H-bonds but the magnitudes of H-bonds differ between these compounds. When mixed together, they are completely miscible but the total volume of the solution will be less than the sum of the two volumes measured separately because there has been a change in the inter-molecular H-bonding structure. What goes on is that several water-water H-bonds & methanol-methanol H-bonds get broken and several water-methanol H- bonds are formed.
While the first splitting step is endothermic, the second bond making step is exothermic. This indicates that CH3OH favors H-bonding with H2O than H-bonding with its own molecules because with water, methanol will have more chances of H-bonding association taking into account that CH3OH has CH3- part so H2O will approach methanol to the small –OH part much easily.
But this is the result of the strong polarity of both mixed compounds, between which the interactions are much stronger than within themselves. And the effect is energy released in the form of heat. Regards,