Low-Cap and Low-Rated Companies

Abstract

Low-cap and low-rated companies have tended to outperform large stocks and growth stocks, according to studies of U.S. and other stock markets published in the 1980s and 1990s. The results turn out to be different in this examination of the longer-term returns of small-caps and value stocks in 14 European countries. Smaller company returns have been lower than, or only modestly ahead of, big company returns, and out-of-sample returns on value stocks mostly remained higher than those on other companies. Historically, across the countries and over periods of as long as 104 years, investing in value stocks has generated larger and more persistent rewards than investing in small companies.