Big or Small?

Capitalisation, i.e. the multiplication between the number of shares and the price of a single share, basically tells us how much a company is worth on the stock market and defines its size. On the US market, a capitalisation of more than USD 10 billion identifies the so-called Large Caps, i.e. companies of large size and for this reason considered more solid and theoretically less volatile. Decreasing the capitalisation values we can find the Mid Caps, with a market capitalisation between $2 billion and $10 billion; and finally the Small Caps with a capitalisation between $300 million and $2 billion. The latter are small companies with great growth potential but more risky. Many studies tell us that small caps are preferred by investors when the business cycle is in an early expansion phase. Towards the end of the expansion phase of the economic cycle, on the other hand, Large Caps tend to be preferred because of their greater ability to withstand the onset of a recession. Understanding which size investors are betting on, can therefore suggest what the prevailing interpretation of the phase of the business cycle is. Information that we try to summarise in our analysis of capitalisation sizes using three major US indices.