chapter  2
16 Pages

Investing in the 21 st Century

ByStephen R. Waite

This chapter addresses five basic questions regarding small-cap stocks in four European markets: Are small-caps a meaningful market segment?; Do small-cap stocks outperform large-cap over the long run?; When do small-cap stocks perform best?; Is active stock selection worthwhile for small-cap stocks?; and Are international small-cap stocks better US portfolio diversifiers than international large-cap?. The four equity markets studied are France, Germany, the Netherlands, and Switzerland. Why these four? The body of existing research on small-cap stocks focuses almost exclusively on the three largest markets: the United States, the United Kingdom, and Japan. The four markets in the chapter are the 'next four' in terms of institutional relevance according to their total market cap, yet relatively little has been written about small-cap stocks in these markets. Only for the last five or six years have distinct small-cap indices even been available for them.