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In business and investing, term microcap stock (also micro-cap) refers to the stock of
public companies A public company, publicly traded company, publicly held company, publicly listed company, or public limited company is a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whet ...
in the United States which have a
market capitalization Market capitalization, commonly called market cap, is the market value of a publicly traded company A public company, publicly traded company, publicly held company, publicly listed company, or public limited company A public limited compan ...
of roughly $50 million to $300 million. The shares of companies with a market capitalization of less than $50 million are typically referred to as nano-cap stocks. Many micro-cap and nano-cap stocks are traded
over-the-counter Over-the-counter (OTC) drugs are medicine Medicine is the Art (skill), art, science, and Praxis (process) , practice of caring for a patient and managing the diagnosis, prognosis, Preventive medicine, prevention, therapy, treatment or Palliat ...
with their prices quoted on the OTCBB, OTC Link LLC, or the Pink Sheets. The larger, more established micro-caps are listed on the NASDAQ Capital Market or
American Stock Exchange NYSE American, formerly known as the American Stock Exchange (AMEX), and more recently as NYSE MKT, is an American stock exchange A stock exchange, securities exchange, or bourse is an Exchange (organized market), exchange where stockbrokers ...
(AMEX). Microcap stocks are in many ways different from other stocks since they are from companies with a small market capitalization and are usually traded on stock exchanges that do not require minimum standards, such as a minimum amount of net assets or a minimum number of stock holders. In addition, these micro cap stock companies often have fewer resources to make their information available to the public. These micro cap stocks are less likely to be published and talked about by stockbrokers compared to larger public companies. Often, microcap stock companies will specialize in innovative products or services that may be unknown to the general public. Micro-cap and especially nano-cap stocks can sometimes experience volatility. Some of these companies fail to execute their business plans and go out of business.
Fraud In , fraud is to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation) or (e.g., a fraud perpetrat ...
and
market manipulation Market manipulation is a type of market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market; the most blatant of cases involve creating false or misleading appearances with respect to the price of, ...
are not uncommon and the transaction costs in trading can be quite high. Pricing is more likely to be inefficient, since fewer institutional investors and analysts operate in this space, due to the relatively small dollar amounts involved and the lack of
liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity In business Business is the activity of making one's living or making money by producing or buying and selling ...

liquidity
. Investors and finance experts have proposed microcaps can be good investments. David Maley of
Ariel Investments Ariel Investments is an investment company located in Chicago, Illinois (''City in a Garden''); I Will , image_map = , map_caption = Interactive maps of Chicago , coordinates = , coordinates_foo ...
argues that ample evidence indicates holding a portion of a portfolio in micro-cap stocks can offer advantages. Micro-caps as a group tend to out-perform stocks from larger companies over time, Daley notes, and micro-caps are not closely correlated with larger company stocks or index funds and thus potentially offset broader market volatility. Furthermore, micro-caps being relatively neglected by analysts offers more potential opportunities for value investors. Similarly, professor Jeremy J. Siegel of
Wharton School of Business The Wharton School of the University of Pennsylvania ( ; also known as Wharton Business School, the Wharton School or simply Wharton) is the business school A business school is a university-level institution that confers degrees in business admi ...
notes in his book ''
Stocks for the Long Run ''Stocks for the Long Run'' is a book on investing To invest is to allocate money in the expectation of some benefit/return in the future. In other words, to invest means owning an asset or an item with the goal of generating income from the in ...
'' how a review of American stock data from 1926 to 1996 found that the smallest quintile of stocks by capitalization (including micro-caps) outperformed the largest quintile by an average of almost 4% per year. But this over-performance was not consistent, with multi-year stretches of time when smaller company stocks under-performed relative to larger company stock.Siegel, Jeremy J. (1994, 1998). Stocks for the Long Run: The Definitive Guide to Financial Market Returns and Long-Term Investment Strategies. Second Edition, Revised and Expanded. McGraw-Hill, INSB: 0-07-058043-X, p. 93


See also

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Market manipulation Market manipulation is a type of market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market; the most blatant of cases involve creating false or misleading appearances with respect to the price of, ...
*
Microcap stock fraud Microcap stock fraud is a form of securities fraud Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodity market, commodities markets that induces investors to make purchase or sale de ...
*
Penny stock #REDIRECT Penny stock Penny stocks are common shares of small public companies that trade for less than five dollars per share. The U.S. Securities and Exchange Commission (SEC) uses the term "Penny stock" to refer to a security Security is fre ...


References

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