Which aspect defines the risk associated with small-cap stocks over the long term?

The aspect that defines the risk associated with small-cap stocks over the long term is their potential for higher returns coupled with greater volatility. Small-cap stocks, which represent smaller companies, tend to have more unpredictable prices. This can be attributed to various factors, such as less market capitalization, lower liquidity, and often a narrower market presence compared to larger companies.

Investors in small-cap stocks often seek higher potential returns because these companies can experience significant growth as they expand and capture market share. However, this opportunity comes with increased risk; market fluctuations can have a more pronounced impact on these stocks, leading to periods of significant price swings. This volatility can manifest as both rapid increases in value during favorable market conditions and significant declines during downturns.

The other options do not accurately reflect the characteristics of small-cap stocks. For instance, stable returns with low volatility do not align with the typical behavior of small-cap stocks, which are known for their unpredictability. Comparatively, small-cap stocks can indeed offer lower returns than large-cap stocks in some scenarios, but the focus here is on their higher potential and associated risks. Fixed returns regardless of market conditions are not a feature of any equity investment, as stocks are inherently variable. Thus, recognizing the relationship between the potential