Small-capitalization stock


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Small-Capitalization Stock

A stock in a publicly-traded company with low amount of market capitalization. In general, a small-cap company has a market capitalization of less than $1 billion or $2 billion, but there is no specific definition. Some brokerages or exchanges have slightly different definitions of small-cap. Some indexes track small-cap companies, as do some exchange traded funds. See also: High-cap, Mid-cap.

Small-capitalization stock.

Shares of relatively small publicly traded corporations with a total market capitalization of less than $2.3 billion are typically considered small-capitalization, or small-cap, stocks.

That number is not used uniformly, however, and you may find small-cap defined as below $1.5 billion. Market capitalization is calculated by multiplying the market price per share by the number of outstanding shares.

Small-cap stocks, which are tracked by the Russell 2000 Index, tend to be issued by young, potentially fast-growing companies. Over the long term -- though not in every period -- small-cap stocks as a group have produced stronger returns than any other investment category. Mutual funds that invest in this type of stock are known as small-cap funds.

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The Russell 2000 index of small-capitalization stocks rose 14.57 points, or 2.24%, to 665.22.
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Research in financial economics suggests that market-wide information may impact the prices of large-capitalization stocks more quickly than small-capitalization stocks. In his seminal paper, Fisher (1966) points out that nonsynchronous trading can induce positive autocorrelation in individual stock returns.
I have since devoted my career to the unjustly maligned and investment-rich universe of small-capitalization stocks.