Neglected firm effect

Neglected firm effect

The tendency of firms that are neglected by security analysts to outperform firms that are the subject of considerable attention.

Neglected-Firm Effect

A theory stating that publicly-traded companies that analysts do not track or follow closely tend to outperform those receiving a great deal of attention. Analysts sometimes pay less attention to companies because there is limited information available on them. Part of the neglected-firm effect may be explained by the fact that these firms are riskier and therefore have higher returns.