This article examines the behavior of the small-capitalization stock return cycle. The authors compare the period 1980-2020 with a study for the period 1960-1995. They find that in the earlier period small-cap stocks earned a return premium when the economy was rising, long-term rates were rising, the US dollar was rising, and market volatility was falling. During the last decade, a strong move in large-cap stocks dwarfed the small-cap premium. The authors conjecture that a change in the character of economic growth, rising long-term rates, and oversold small-cap conditions may reverse this.

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