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Neglected-Firm Effect


A market anomaly (more specifically, a pocket of market inefficiency in the stock market) that results mainly from the lack of information and institutional interest in a specific firm. This translates into a small number of analysts following it. Nevertheless, such a firm tends to produce higher returns than those firms covered by too many analysts. Stocks of neglected firms tend to outperform the overall stock market because of the small-firm effect. Once spotted by analysts and large institutions, the stocks of neglected firms register abnormally large gains.



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