Optical properties of lightly absorbing LaB6 nanoparticles (NPs) derived from mechanical pulverization have been studied using the effective medium theory (EMT). EMT calculations are found to agree with observed optical profiles remarkably if both Drude and bound-electron terms of dielectric functions are modified for NPs from bulk values. In LaB6 NPs, the imaginary part of dielectric functions increases and the energy of initial rise in joint density of states redshifts as compared to bulk values. Origin of these behaviors has been examined in terms of lattice defects, in addition to the conventional intrinsic size effects. Lattice defects in LaB6 NPs have been identified as modest lattice expansion using x-ray diffraction and transmission electron microscopy. The observed lattice expansion is found to decrease the band gap by decreasing the anti-bonding energy of La-5d/B-2p hybridized orbitals by first-principles calculations using sX-LDA. It is concluded that, unlike conventional belief, dielectric functions can be modified from bulk values in NPs whose average particle size amply exceeds the electron mean free path.