Nothing is guaranteed that’s why there is an expected risk premium that you may or may not receive just like the equity premium in general.The small-cap premium could just be an illusion due to the friendly economy in the past.
Because until now recovery has come quickly after a recession, small caps have always survived for the most part. The higher risk has not materialized.
What happens to small caps if the economy takes a very long time to recover?
I think permanent losses could be realized for small cap investors.
Of course, large caps will also suffer terribly, but most large caps will somehow survive and be able to rise again. However, the permanent loss of small caps remains in such a event.
Such risks are not compensated by the little increased expected return of small caps.
Most would say small value/profitability has the premium. Small by itself is debatable if there is a premium at all within the factor community/academics.
Statistics: Posted by BitTooAggressive — Thu Dec 26, 2024 2:10 pm — Replies 77 — Views 8361