Date of Award
William J. Trainor Jr.
Thesis Professor Department
<--College of Business and Technology-->
This study examines excess risk-adjusted returns generated by mid-cap firms with an average market equity between $2.4 billion and $5.5 billion in 2017. Researchers have heavily studied the small-firm effect since its identification in the early 1980s, leading investors to overweight small-cap securities. Additional investments in the small-cap segment caused the small-cap anomaly to weaken. This study finds that excess returns of small-cap firms compared to mid-cap firms are not statistically significant in the periods 1946 – 2017 and 1982 -2017. However, mid-cap firms generate significantly higher 3-year average returns relative to small and large-cap firms after the initial identification of the small-cap anomaly (1982 – 2017). Further, mid-cap securities generate a higher risk-adjusted return after the small-cap anomaly was identified. This study hypothesizes the mid-cap anomaly results from greater growth potential for mid-caps relative to large-caps while still being large enough to weather economic storms. This study also hypothesizes that non-size related factors have the largest impact on the mid-cap segment. The results support the existence of a mid-cap anomaly; however, the results suggest the anomaly is not a result of the growth potential of firms within the segment. Additionally, the results suggest non-size related factors such as book-to-market and operating profitability have the smallest impact on mid-cap securities. Therefore, this study concludes excess returns generated by mid-cap securities represent a true anomaly that is not dependent upon non-size related factors.
East Tennessee State University
Honors Thesis - Withheld
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Lynch, Ryan, "High Returns and Low Volatility: The Case for Mid-Cap Stocks" (2018). Undergraduate Honors Theses. Paper 450. https://dc.etsu.edu/honors/450
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