1. investment appeal of
Keywords:
Small cap companies,
mean reversion,
Forbes’ financial filters
Small Growth stocks
(A. Chandra & A. Reinstein) student Naruchit T. ID 12

2. Outline
why
lit. Intro & why This article?
hypo
lit. review & hypotheses
design
research design
find
findings
conclu
conclusions
plan
IS contribution & plan

3. investors love growth
intro & why
press suggest
• good ? to invest in
“ Best small cap. companies ” list
After !!
• How about return compare to risk ?
Before

4. Keywords
review
Small,
mean reversion,
Forbes

5. • Peters(1982) large cap
• Cook(1984) overlooked small cap
• Chan(1985) risk & changes in risk premium
• Clayman(1987) overestimate
review
• Huberman(1987) response differently
• Solt(1989) inverse
.
• Bannister(1990) mean reversion
• Chan(1991) determine risk of small stock, not seem higher return
• Bauman(1997) overestimate, mean reversion tendency

6. • Kou(2002) mean reversion boom & burst, Bauman(2002) “hot”
Business Week positive excess returns pre but negative later, due to
decline several years of performance and market
• Anderson(2005) risk-adjusted returns
rev (cont.)
• Lander's (2006) Forbes consistent Bauman(2002)
• Fama & French(2007) convergence process
• Jun(2008) reversion of focused value & small-cap
• Yu(2010) 1985–2006 annual list “hot growth companies”,
underestimate before but later overestimate

7. some prior suggest underperformance but investors continue invest,
evidence on small companies is unsettled and often contrary
hypotheses
motivate to examine:
invest in small?,
mean reversion?,
buy stocks in list?
null hypothesis, we expect
insignificant abnormal return
examines small growth stocks by analyzing the
investment appeal of Forbes' annual list of best small companies,
extent of mean reversion, and if Forbes' criteria sufficient

8. Methodology
• Forbes: four filters then rank: sales, stock price, ROE, profit margin
• supplement 13 financial variables
Data description
design
excess returns
Averaging returns within each event period for three
windows (pre-36 months, announcement month and
post-36 months, total 73-month)
abnormal returns

9. findings

10. findings (cont.)

12. significant abnormal & excess return, suggests mean reversion
This study differs from Lander(2006), not completely support
Business Week results because:
(1) 13 additional financial variables;
(2) abnormal returns (versus excess returns in Lander,2006)
Possible reasons for mis-pricing
1.post earnings announcement drift (Bernard, 1989; Foster, 1984)
2.accrual anomaly (Sloan, 1996)
conclusions
Collins(2000) hedging portfolio exploiting both forms of mispricing generates abnormal returns

13. Beware of “
” small growth stocks in Forbes.
small stocks' perform well only Forbes’ filters,
but does not hold up on 13 additional variables, some measurements sharply drop
more than halved.
These results suggest that Forbes' financial filters may only represent partially stock
performance.
This confirmation of “mean reversion”, possible explanation is Forbes has caught
young stars in their prime, since every firm has a life cycle.
Given the differences between applying Forbes filters and 13 additional filters,
future research should develop segregate strong
contri.& plan
from weak small growth companies.

14. replication in Thai Stock Market
- analyzing performances of “ Money & Banking best small stocks ”,
using pre- and post-publication test mean reversion.
-use both returns and financial performance based to examine small
growth stocks’ investment appeal.
Independent Study Plan
contri.& plan
1.Stat. Software : Eview
2.Source of Data: Compustat, Thai Stock Exchange
3.Timeline
October : develop proposal
November: gather data
December: test hypo., conclude, proposal