Another effect is over-valuing of stocks with sufficiently high caps to enter the index being tracked.
(A similar already occurs with huge institutional investors (e.g. retirement fund managers) that have too much money to invest to worry about small caps - Warren Bufett also has this first-world problem. Yet another similar effect occurs through bigger caps getting more publicity, so more people invest in them, disproportionately driving up the price.)
The result is smaller caps become more attractive (to small investors). Which results in greater investment in them - but only up to the point allowed by the above effects. So the undervaluing persists.
Kinda similar to tiny startups finding tiny markets attractive, that aren't worth it for incumbent to pursue.
(A similar already occurs with huge institutional investors (e.g. retirement fund managers) that have too much money to invest to worry about small caps - Warren Bufett also has this first-world problem. Yet another similar effect occurs through bigger caps getting more publicity, so more people invest in them, disproportionately driving up the price.)
The result is smaller caps become more attractive (to small investors). Which results in greater investment in them - but only up to the point allowed by the above effects. So the undervaluing persists.
Kinda similar to tiny startups finding tiny markets attractive, that aren't worth it for incumbent to pursue.