When looking up the aforementioned paper in the Journal of Financial Research by Darrat et al I also found this one ARE THE BEST SMALL COMPANIES THE BEST INVESTMENTS? W. Scott Bauman Northern Illinois University C. Mitchell Conover University of Richmond Don R. Cox Appalachian State University ABSTRACT Previous research finds that large companies previously judged to be excellent growth companies have subsequently been poor investments. Our study examines small companies selected by Business Week on the basis of multiple criteria used in annual articles featuring highly rated growth companies. We study the investment performance over the three years before eleven annual Business Week publications and the three years after publication. We find positive excess returns in the pre-publication period, but negative excess returns in the post-publication period. This reversal in investment performance appears to be due to a mean reversion tendency in operating performance, in which the earnings and the past rates of return on capital of such companies subsequently decrease significantly.i found this remark particularly telling"We find positive excess returns in the pre-publication period,"(hence that is why they are chosen by the publishers, see the mea culpa written by the TSCM writer that i mentioned earlier) "but negative excess returns in the post-publication period."they explain this effect as reversion to the mean in terms of operating performance, but i suspect that there is also a mean reversion with respect to valuation going on as well.tr
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