Neglected Firm Effect

Filed Under » ,
Dictionary Says

Definition of 'Neglected Firm Effect'

A theory that explains the tendency for certain lesser-known companies to outperform better-known companies. The neglected firm effect suggests that the lesser-known companies are able to generate higher returns on their stock shares, because they are less likely to be analyzed and scrutinized by market analysts. The smaller firms might also exhibit better performance, because of the higher risk/higher reward potential of small, lesser-known stocks, with a higher relative growth percentage.
Investopedia Says

Investopedia explains 'Neglected Firm Effect'

Smaller firms are not subject to the same scrutiny and analysis as the larger companies, such as blue-chip firms. Analysts have a vast amount of information at their disposal, on which to form opinions and make recommendations. The information regarding the smaller firms may at times be limited to those filings that are required by law. As such, these firms are "neglected" by analysts, because there simply is not much information to scrutinize or evaluate.

Articles Of Interest

  1.

    Understanding Small- And Big-Cap Stocks

    If you don't realize how big small-cap stocks can be, you'll miss some good investment opportunities.

  2. Finding Undiscovered Stocks

    Wall Street tends to focus on large cap stocks, leaving other stocks under-followed and undervalued.

  3. Tips For Investors In Volatile Markets

    Find out what to look out for when trading during market instability.

  4. 7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.

  5. 7 Market Anomalies Investors Should Know

    Though they're unpredictable and heavily contested, market anomalies can often work in an investor's favor.

  6. Making Sense Of Market Anomalies

    Stocks sometimes thwart the efficient market theory by showing some very unusual patterns.

  7. What Is Market Efficiency?

    The efficient market hypothesis (EMH) suggests that stock prices fully reflect all available information in the market. Is this possible?

  8. Weighted Average Cost Of Capital (WACC)

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality

  9. Exploring The Current Account In The Balance Of Payments

    Learn how a country's current account balance reflects the country's economic health.

  10. Taking Shots At CAPM

    Find out why many investors think the capital asset pricing model is full of holes.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Xenocurrency

    A currency that trades in markets outside of its domestic borders.

  2. Wanton Disregard

    A standard of severe negligence. Wanton disregard is a very serious accusation that indicates that a person behaved extremely recklessly.

  3. Ultra ETF

    A class of exchange-traded funds (ETF) that employs leverage in an effort to achieve double the return of a set benchmark.

  4. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding stockmade by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making.

  5. Samurai Bond

    A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations.

  6. Chartalism

    A non-mainstream theory of money that emphasizes the impact of government policies and activities on the value of money.
Trading Center
http://sp.fastclick.net/ad/tr/10858-64082-15546-0?mpt=0754c0904bd7f1b8261178e66fde9dd2