3 ms·
Its a risk-based idea. These companies are valued lower (which everyone sees) because they are thought to be riskier. Theoretically, because less people invest
by tryptophan 7y ago
Its a risk-based idea.
These companies are valued lower (which everyone sees) because they are thought to be riskier. Theoretically, because less people invest in them because of this, it should result in higher returns for those who stick with the value companies due to the higher risk they are taking on.
- kgwgk 7y agoThe reasoning often goes the other way, academics find a "factor" that outperforms empirically and try to come up with a risk-based explanation backing theoretically what does happen :-) An alternative explanation is that they are simply mispriced.