Neglected-Firm Effect

neglected-firm effect

The theory that investments in the stocks of firms that are not regularly followed by security analysts outperform the stocks of firms that receive considerable attention from analysts.

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Neglected-Firm Effect

A theory stating that publicly-traded companies that analysts do not track or follow closely tend to outperform those receiving a great deal of attention. Analysts sometimes pay less attention to companies because there is limited information available on them. Part of the neglected-firm effect may be explained by the fact that these firms are riskier and therefore have higher returns.