Investor sentiment has a significant impact on the price movement of small-cap stocks due to their lower market capitalization and often limited liquidity. Small-cap stocks are generally more sensitive to shifts in sentiment because they are less covered by analysts and institutional investors, making them more susceptible to emotional buying and selling by retail investors.

When investor sentiment is positive, small-cap stocks can see rapid price increases as traders pile in, driven by optimism, news, or growth potential. Since small-caps have smaller trading volumes, even a relatively modest influx of buying interest can cause sharp price spikes. This is especially true when there's positive news or speculative hype, which can lead to exuberant price rallies, often pushing valuations beyond fundamental levels.

Conversely, during periods of negative sentiment or market uncertainty, small-cap stocks are more likely to experience steep declines. Investors tend to pull out quickly from riskier investments, including small-caps, in favor of safer assets. This "risk-off" behavior amplifies selling pressure, causing prices to drop rapidly.

Additionally, the lack of institutional support and limited liquidity can exacerbate price volatility. As a result, small-cap stocks often see exaggerated price movements—both up and down—driven more by changes in investor sentiment than by their actual fundamentals.