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).

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.

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.
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References in periodicals archive ?
A number of researchers have found that the turn-of-the-year effect in stock returns is related to a small-firm effect (see Keim, 1983; Reinganum, 1983; Roll, 1983; and Cho and Taylor, 1987).
To empirically examine the relation between the small-firm effect and the January anomaly in the corporate bond market, I use Compustat data to compare firm market value to minor bond rating categories (see Table 3).
Given the relation between firm size, as measured by market value, and bond rating, the results suggest that the January effect in the bond market is indeed related to the small-firm effect, as also found in the stock market.

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