It's a natural effect of the way your brain tries to pass information from your visual cortex and the geniculate nucleus to that EXTREMELY WEIRD thing you call consciousness.
How big is an orange? How big is a ball? It is one of the hard things for your brain to work out, is it a small ball in front of me, or is it a big ball, very far away.
To overcome this, the brain has to use other cues to establish distance and absolute size (for conscious vision).
The moon looks big on the horizon, but not above you. The 'ball of light' that exists in front of your eyes, as it were, is more or less the same size. Cut a hole in a piece of paper to match the moon size when above you, and compare it when its straight ahead, on the horizon. Your neighbours will stare, but it's the same size.
Your brain is not thinking of the sky in the same way when above compared to straight ahead. It tends to see that above you as closer to you, and that straight ahead as far away. Using this as a cue, it changes the size that your consciousness thinks the moon is (*).
Airline pilots, by the way, report having the same effect, even when other cues, and 'atmospheric distortion' are absent.
This perceived size distortion happens to you all the time, best shown in illusions like the Ponzo illusion (boxes on train tracks) and the big circle, little circle illusion (circles look bigger when beside littler circles).
*If you try to reach out and grab that moon, like you would the circles, your hand would prepare to pinch the same way for the moon above your head and that on the horizon. This is because the ACTION visual system is separate from the CONSCIOUSNESS visual system, and is not subject to the latters size distortions. Very weird.