Question

What are the rational and irrational reasons you think that may lead to high returns in small and value stocks?

Answer 1

Small value stocks are those that are trading below the book value in the market or have lesser market capitalization.

Some of the rational and irrational reasons are:

1. The high value stocks are underperforming due to lesser demand and high price.

2. The smaller stock companies have outperformed financially beyond market expectations.

3. The stock market is bearish and is favouring small stocks due to less risk and volatility.

4. The economic policies support and are providing incentives to small companies.