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investment appeal of
Keywords:
Small cap companies,
mean reversion,
Forbes’ financial filters

Small Growth stocks
(A. Cha...
Outline
why

lit. Intro & why This article?

hypo

lit. review & hypotheses

design

research design

find

findings

conc...
investors love growth
intro & why

press suggest

• good ? to invest in
“ Best small cap. companies ” list
After !!

• How...
Keywords
review

Small,
mean reversion,
Forbes
• Peters(1982) large cap
• Cook(1984) overlooked small cap
• Chan(1985) risk & changes in risk premium
• Clayman(1987) ove...
• Kou(2002) mean reversion boom & burst, Bauman(2002) “hot”
Business Week positive excess returns pre but negative later, ...
some prior suggest underperformance but investors continue invest,
evidence on small companies is unsettled and often cont...
Methodology
• Forbes: four filters then rank: sales, stock price, ROE, profit margin
• supplement 13 financial variables
D...
findings
findings (cont.)
significant abnormal & excess return, suggests mean reversion

This study differs from Lander(2006), not completely suppor...
Beware of “

” small growth stocks in Forbes.

small stocks' perform well only Forbes’ filters,
but does not hold up on 13...
replication in Thai Stock Market
- analyzing performances of “ Money & Banking best small stocks ”,
using pre- and post-pu...
Investment appeal of small growth stocks_study by student
Investment appeal of small growth stocks_study by student
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Investment appeal of small growth stocks_study by student

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Investment appeal of small growth stocks_study by student

  1. 1. investment appeal of Keywords: Small cap companies, mean reversion, Forbes’ financial filters Small Growth stocks (A. Chandra & A. Reinstein) student Naruchit T. ID 12
  2. 2. Outline why lit. Intro & why This article? hypo lit. review & hypotheses design research design find findings conclu conclusions plan IS contribution & plan
  3. 3. investors love growth intro & why press suggest • good ? to invest in “ Best small cap. companies ” list After !! • How about return compare to risk ? Before
  4. 4. Keywords review Small, mean reversion, Forbes
  5. 5. • Peters(1982) large cap • Cook(1984) overlooked small cap • Chan(1985) risk & changes in risk premium • Clayman(1987) overestimate review • 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
  6. 6. • 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 rev (cont.) • 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
  7. 7. some prior suggest underperformance but investors continue invest, evidence on small companies is unsettled and often contrary hypotheses motivate to examine: invest in small?, mean reversion?, 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
  8. 8. Methodology • Forbes: four filters then rank: sales, stock price, ROE, profit margin • supplement 13 financial variables Data description design excess returns Averaging returns within each event period for three windows (pre-36 months, announcement month and post-36 months, total 73-month) abnormal returns
  9. 9. findings
  10. 10. findings (cont.)
  11. 11. 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) conclusions Collins(2000) hedging portfolio exploiting both forms of mispricing generates abnormal returns
  12. 12. 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 performance. 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 contri.& plan from weak small growth companies.
  13. 13. 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 contri.& plan 1.Stat. Software : Eview 2.Source of Data: Compustat, Thai Stock Exchange 3.Timeline October : develop proposal November: gather data December: test hypo., conclude, proposal

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