Extreme Investing:

1 esearchers have looked into valuation effects for decades. Their research has usually focused on large capitalization stocks. Not as much research has been done on valuations in small capitalization stocks, as there is a tendency by many to associate small capitalization stocks with a growth style. Any research that has been done on small capitalization stocks was usually confined to the lower deciles of the Center for Research in Securities Prices data as this is the data set to which academics had easy access. This paper presents valuation research for small capitalization stocks as defined by the Russell 2000 index which is the index used by most institutional investors to represent small capitalization stocks. The results will show that while valuation is still an effective way to manage portfolios, certain characteristics exist at the extremes of the universe data that make small capitalization stocks behave differently from large capitalization stocks.