Why Invest in Emerging Markets Small Cap Stocks?
The notion of a “small-cap premium” (i.e. that smaller capitaliation stocks show persistent outperformance versus large capitalisation stocks) has become deeply established in investors’ consciousness since its introduction by Fama and French in 1993. Over the years, many investors have included an explicit allocation to U.S. and international small-cap stocks in their portfolios in order to benefit from the implied outperformance of this segment of the market. In recent years, there has been a growing interest in whether making a similar allocation to emerging market small-cap stocks can be beneficial.