• Peters(1982) large cap
• Cook(1984) overlooked small cap
• Chan(1985) risk & changes in risk premium
• Clayman(1987) overestimate
• Huberman(1987) response differently
• Solt(1989) inverse
• Bannister(1990) mean reversion
• Chan(1991) determine risk of small stock, not seem higher return
• Bauman(1997) overestimate, mean reversion tendency
• Kou(2002) mean reversion boom & burst, Bauman(2002) “hot”
Business Week positive excess returns pre but negative later, due to
decline several years of performance and market
• Anderson(2005) risk-adjusted returns
• Lander's (2006) Forbes consistent Bauman(2002)
• Fama & French(2007) convergence process
• Jun(2008) reversion of focused value & small-cap
• Yu(2010) 1985–2006 annual list “hot growth companies”,
underestimate before but later overestimate
some prior suggest underperformance but investors continue invest,
evidence on small companies is unsettled and often contrary
motivate to examine:
invest in small?,
buy stocks in list?
null hypothesis, we expect
insignificant abnormal return
examines small growth stocks by analyzing the
investment appeal of Forbes' annual list of best small companies,
extent of mean reversion, and if Forbes' criteria sufficient
• Forbes: four filters then rank: sales, stock price, ROE, profit margin
• supplement 13 financial variables
Averaging returns within each event period for three
windows (pre-36 months, announcement month and
post-36 months, total 73-month)
significant abnormal & excess return, suggests mean reversion
This study differs from Lander(2006), not completely support
Business Week results because:
(1) 13 additional financial variables;
(2) abnormal returns (versus excess returns in Lander,2006)
Possible reasons for mis-pricing
1.post earnings announcement drift (Bernard, 1989; Foster, 1984)
2.accrual anomaly (Sloan, 1996)
Collins(2000) hedging portfolio exploiting both forms of mispricing generates abnormal returns
Beware of “
” small growth stocks in Forbes.
small stocks' perform well only Forbes’ filters,
but does not hold up on 13 additional variables, some measurements sharply drop
more than halved.
These results suggest that Forbes' financial filters may only represent partially stock
This confirmation of “mean reversion”, possible explanation is Forbes has caught
young stars in their prime, since every firm has a life cycle.
Given the differences between applying Forbes filters and 13 additional filters,
future research should develop segregate strong
from weak small growth companies.
replication in Thai Stock Market
- analyzing performances of “ Money & Banking best small stocks ”,
using pre- and post-publication test mean reversion.
-use both returns and financial performance based to examine small
growth stocks’ investment appeal.
Independent Study Plan
1.Stat. Software : Eview
2.Source of Data: Compustat, Thai Stock Exchange
October : develop proposal
November: gather data
December: test hypo., conclude, proposal
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