In the early 1980s, economists pointed out that smaller stocks had outperformed larger ones for decades. That inspired investors to pile into them and into the new small-cap funds set up to meet that demand. Such big buying, however, pushed up smaller stocks’ prices too far – so much so that in 1998 Paul Marsh and Elroy Dimson, two economists at the London Business School, pointed out in a paper entitled 'Murphy’s law' that the small-cap premium had disappeared. But then Murphy’s law asserted itself in another way, and small-caps beat bigger ones in the following five years.
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