The Small Cap Premium: Where Is the Beef?

BVResearch Pro
American Society of Appraisers Business Valuation Review™
Winter 2015 Volume 34, Issue 4 pp. 152-157
Aswath Damodaran, Ph.D, MBA

Summary

Academics and practitioners in finance have long accepted the notion that small market capitalization stocks earn higher returns, after adjusting for risk, than large market capitalization stocks. They have often followed through by either investing in small cap stocks, hoping to earn these higher returns, or by augmenting the required returns (discount rates) for smaller companies with a “small cap premium” when valuing these companies. In this article I argue that these practices are misguided because the small cap premium is no longer supported by the historical data, does not seem to be priced in by investors in markets today, and is based on faulty intuition.
The Small Cap Premium: Where Is the Beef?
PDF, Size: 647 KB

Copyright American Society of Appraisers

The information contained in this product is based on content obtained by ASA from sources considered to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. BVR and ASA accept no liability for the use of such information which is provided "AS IS" and with no warranties, express or implied.