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Suppose that you constructed a trading signal, and found that your signal has good paper performance...

Suppose that you constructed a trading signal, and found that your signal has good paper performance in two subset of stocks. In the first subset, stocks have small market capitalization whereas in the second subset, stocks have large market capitalization. Which subset would you use for your live implementation? Please explain your reasoning in one or two sentences

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Answer #1

I will be using the LARGE MARKET CAPITALISED STOCKS, because these stocks will be having a very high volume presence and these stocks will be reflecting the consensus of a large number of traders and market participants so they will be more transparent in nature and hence it can be said that the large market capitalisation stocks having large number of volume in trading them are having a more transparent reflection of their true value because of large number of market participation whereas small capitalised stocks are traded on a very low volume and they are sometime disguising in their performance and they cannot be completely relied upon, so I will be always selecting large capitalised stocks.

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