Small company stocks have historically had higher average annual returns than large company stocks,and also a higher risk premium.

Question

Quizplus · Accepted Answer

This is a well-known phenomenon in finance known as the small firm effect. Small companies tend to have higher growth potential and are often overlooked by analysts, leading to undervaluation and higher returns for investors who are willing to take on the higher risk involved. However, it is important to note that this is a general trend and there are always exceptions to the rule.

Small Company Stocks Have Historically Had Higher Average Annual Returns