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Research around 1980 showed that stocks of small firms had higher average returns than stocks of large firms. This finding gained much attention, as it seemed to contradict the efficient markets hypothesis. It suggested a simple way to beat the market: purchase only small-firm stocks.

a. Can you explain this deviation from market efficiency?

b. Would you guess that small stocks have done better than large stocks since 1980? Why or why not?

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Financial Management, Finance

Category:- Financial Management
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