This means that the historical return to small value stocks is nearly 10
percentage points above the “efficient market” prediction, while the his-
torical return to small growth stocks has been 4.4 percentage points
below its predicted level.
INITIAL PUBLIC OFFERINGS: THE DISAPPOINTING OVERALL
RETURNS ON NEW SMALL-CAP GROWTH COMPANIES
Some of the most hotly sought after small stocks are initial public offer-
ings (IPOs).
New companies are launched with enthusiasm that excites in-
vestors, who dream that the upstarts will turn into the next Microsofts
or Intels. The large demand for IPOs causes most IPOs to surge in price
after they are released into the secondary market, offering those in-
vestors who were able to buy the stock at the offering prices immedi-
154 PART 2 Valuation, Style Investing, and Global Markets
FIGURE 9–5
Cumulative Returns to Smallest Quintile Growth and Value Stocks, 1957 through December 2006