Small-Firm Effect

Small-firm effect

The tendency of small firms (in terms of total market capitalization) to outperform the stock market (consisting of both large and small firms).

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Small Firm Effect

A theory stating that publicly-traded companies with low market capitalization tend to outperform larger ones. Part of the small firm effect may be explained by the fact that these firms are riskier and, therefore, have higher returns. Additionally, small firms have lower stock prices and, thus, what would be a small price appreciation for a large firm can, in fact, be huge for a small firm. See also: Neglected-firm effect.

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small-firm effect

The theory that the stock of small firms tends to outperform the stock of large firms. Some analysts attribute the small-firm effect to the fact that small firms have more room to grow than large firms do.