Extreme Investing: Using Extreme Data to Find Value in Small-Cap Stocks

A large amount of literature has accumulated over the years on various forms of “small-cap effects” that summarize a number of apparent systematic differences in the behavior of stock returns of small-capitalization stocks versus that of large-capitalization stocks. While such effects have been used in many different kinds of stock return forecasting models, perhaps the most important of which is based on the standard Fama-French factor model.