NEW YORK (MarketWatch) — Hedge funds are emerging as one of the key drivers behind the unexpected, enduring strength of small-capitalization stocks, a sector that has baffled observers by rallying since October, 2002.
While hedge funds have fueled the rally, the mercurial and fickle nature of hedge fund capital flows also poses a risk to the high-flying sector.
Financial forecasters believed heavy capital flows into larger-cap stocks and out of small caps, defined as those with a market capitalization between $500 million and $2 billion, would take place around late 2005 or early 2006.
