Northern Exposure: How Canadian Micro-Cap Stock Investments Can Benefit Investors

17 Pages Posted: 29 Aug 2014

See all articles by Stephen R. Foerster

Stephen R. Foerster

University of Western Ontario - Richard Ivey School of Business

Lionel Fogler

Kingwest & Company

Stephen G. Sapp

University of Western Ontario - Richard Ivey School of Business

Date Written: August 1, 2014

Abstract

Micro-cap stocks, a subset of small stocks, have the potential to provide additional diversification benefits and increased returns to investors. The ways that micro-cap stocks can contribute to investors’ actual portfolios have not been rigorously investigated. In this study, we examine micro-cap stocks in Canada and consider investability constraints and transaction costs that are overlooked in most other size-effect studies. We find that micro-cap stocks in Canada have relatively high returns and a low correlation to large stocks in Canada, the United States, and other developed markets. We conclude that these findings demonstrate that Canadian micro-cap stocks appear to represent a unique asset class and that investing in this unique asset class can improve the risk-return characteristics for global investors’ overall portfolios. We therefore suggest that global investors consider adding Canadian micro-cap stocks to their portfolios.

Keywords: Canadian micro-cap stocks

JEL Classification: G10, G11

Suggested Citation

Foerster, Stephen R. and Fogler, Lionel and Sapp, Stephen G., Northern Exposure: How Canadian Micro-Cap Stock Investments Can Benefit Investors (August 1, 2014). Journal of Investment Consulting, Vol. 15, No. 1, pp. 36-50, 2014. Available at SSRN: https://ssrn.com/abstract=2480182

Stephen R. Foerster (Contact Author)

University of Western Ontario - Richard Ivey School of Business ( email )

1255 Western Road
London, Ontario N6G 0N1
Canada
519-661-3726 (Phone)
519-661-3485 (Fax)

Lionel Fogler

Kingwest & Company ( email )

86 Avenue Road
Toronto, Ontario M5R2H2
Canada

Stephen G. Sapp

University of Western Ontario - Richard Ivey School of Business ( email )

1151 Richmond Street North
London, Ontario N6A 3K7
Canada
519-661-3006 (Phone)
519-661-3959 (Fax)

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