This is part two of a ten-part series on small-cap investing discussing the small-cap premium.
Throughout this series, I’m looking at both the benefits, and drawbacks of investing in small caps, considering all of the evidence available to us today for both sides of the debate.
When completed we are planning to turn the series into an e-book, which we hope will be a comprehensive guide to investing in small caps.
The series is a collaboration between ValueWalk and ValueWalk’s new small cap investing magazine Hidden Value Stocks.
Hidden Value Stocks is a quarterly publication which profiles two top-notch small-cap focused hedge funds in each issue. Within each issue, the managers discuss their investing process as well as to small-cap ideas each. To find out more, head over to www.hiddenvaluestocks.com.
The Small-Cap Investing Handbook Part Two: The Small-Cap Premium
Evidence of a small-cap premium first appeared in 1980 when a study titled “The Relationship Between Return And Market Value Of Common Stocks” was first published. Since publication, this study has formed the basis of a number of other academic studies that have tried to prove the existence of the small-cap premium.
Today investors are increasingly asking if this study remains relevant considering how the markets have developed since the late 70s. Not only has information on small caps become more widely disseminated but trading in these instruments is now easier than ever.