The Small Firm Effect is the theory that:
A)firms with small market capitalization outperform the market.
B)small firms have greater market capitalization.
C)transaction costs associated with dealing in larger capitalization firms might severely cut into profit potential.
D)More than one of the above

Question

Quizplus · Accepted Answer

In a study of New York Stock Exchange firms, covering from 1936 to 1975, Banz indicates that the lowest quintile (bottom 20%) of firms in terms of market capitalization provide the highest returns, even after adjusting for risk. Banz suggests, "On average, small NYSE firms have had significantly larger risk-adjusted returns than larger NYSE firms over a 40-year period."

The Small Firm Effect Is the Theory That