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.
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