U.S. Narrow Markets: An Empirical Investigation
This article examines the recent U.S. narrow-markets phenomenon?that is, the large number of under performing stocks in contrast to the small number of outperforming stocks. Recent stock market performance in the United States has been characterized by many market observers as ?narrow? in the sense that there have been relatively few outperforming stocks and a relatively large number of under performing stocks. This paper addresses the ?narrow markets? phenomenon and documents its existence and the extent of its occurrence. Most observers refer to the S&P 500 index when discussing the recent narrowness of markets. This focus is natural since the S&P 500 represents a significant proportion of the market capitalization of all publicly traded assets in the United States. In addition, the performance of most institutional money managers is measured, relative to this index. Although narrowness may loosely be described as relatively few large stocks outperforming many small stocks, this paper addresses narrowness within the S&P 500 index. Although the S&P 500 index is a large-capitalization benchmark, the very largest of the stocks within the index have exhibited considerably different return behavior in recent years from the rest of the stocks in the index. This difference is the focus of the paper.