SMALL MICRO CAP STOCKS DRIVERS

The small-cap companies generally come in two varieties:В a small number of firms that recently went public and a large cohort whose businesses are in decline. Since shorting micro- and small-cap stocksВ is expensive and frequently impossible, we focused on long-only portfolios. Transaction costs are 1% for micro caps, 0.5% for small caps, and 0.1% for mid and large caps.

The indices are rebalanced quarterly and the factor portfolios monthly. Momentum is measured by the performance over the last 12 months, excluding the most recent month. We define Value as a combination of price-to-book and price-to-earnings multiples and Quality as a combination of return-on-equity and debt-over-equity. We created market cap-weighted and equal-weighted indices as well as three equal-weighted factor portfolios composed of the top 10% of stocks ranked by each factor.

Mid and large caps have market capitalizations in excess of $1 billion and number about 1,800 stocks in total.

Small caps feature about 400 stocks with $500 million to $1 billion in market capitalization.

Micro caps include about 800 stocks, each with $100 million to $500 million in market capitalization.

Together these three segments approximate the Russell 3000 universe: To find out, we divided the US equity market into three segments based on market capitalization. So does factor investing in micro- and small-cap stocks in the United States offer any additional alpha? Methodology Could the less-covered areas of the equity markets be worth an extra look?ДЄlthough analyzing thousands of micro- and small-cap stocks by hand is not a sensible strategy, investors can apply systematic frameworks to uncover hidden gems. Unfortunately for such companies, analyst coverage of US stocks has been steadily decreasing since the 2000s due to tighter Wall Street regulations, among other factors.Д«ut the lack of analyst coverage might offer alpha-generating opportunities. Galaxy Gaming, which produces table games and betting platforms for the casino industry, has a market capitalization of $50 million and trades over the counter (OTC). Galaxy Gaming (GLXZ), on the other hand, is followed by exactly zero analysts.

SMALL MICRO CAP STOCKS DRIVERS

Posted In: Drivers of Value, Economics, Equity Investments, Performance Measurement & Evaluation, Portfolio Management Treasure Hunting in the Wild West of Equity MarketsДЇAANG stocks like Apple (AAPL) are covered by dozens of highly trained financial analysts.

Small micro cap stocks