Honors Program

University Honors

Date of Award


Thesis Professor(s)

William J. Trainor Jr.

Thesis Professor Department

<--College of Business and Technology-->

Thesis Reader(s)

Richard Gregory


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

Document Type

Honors Thesis - Withheld

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.


Copyright by the authors.