neglected firm effect

Definition

Theory suggested to explain how lesser known companies are sometimes able to generate higher returns on their stock than better known companies. The theory contends that lesser known companies tend to be smaller and therefore less likely to be analyzed by securities analysts due to their limited information. The better performance could also be tied to risks associated with investing in smaller companies as smaller companies can exhibit a higher relative growth percentage and can be at more risk of default than larger companies.
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neglected business negligence