Investigating value and growth : what labels hide ? (original) (raw)
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Style Investing: Incorporating Growth Characteristics in Value Stocks
SSRN Electronic Journal, 2000
Several empirical studies show a systematic relationship between stock characteristics (size, earning yield, dividend yield, etc.) and stock returns. The previous studies, that show stocks with high earnings yield produce superior returns use univariate measures (such as E/P or B/P) to classify stocks into value or growth stocks. This paper shows that the traditional method of classification ignores instances when value and growth investing strategies instead of being mutually exclusive can complement each other in selecting superior performing stocks. Growth in EPS provides a more meaningful way to capture growth than using a measure of low E/P ratio. A strategy focusing on investing in stocks that have the dual characteristics of a high E/P ratio and high growth in EPS outperforms a strategy of high E/P alone. The study also documents some evidence of persistence in performance for stocks having the dual characteristic of high growth in EPS and high E/P ratio.
Characterizing Value and Growth Investing in Institutional Portfolios
SSRN Electronic Journal, 2000
Using a unique money manager database, we examine 4,754 non mutual fund value-and growth-oriented portfolios over the period 2001-2003. Consistent with style definitions, we find that on average, growth funds have price-earnings ratios, price-to-book ratios and earnings growth rates that are twice as large as those for value funds. We find that large and mid-cap value funds hold stocks of companies with significantly higher financial leverage than those held by growth funds. We measure style adherence relative to Russell indexes as well as the funds' own benchmarks, and find that large cap funds tend to stay closer to their own benchmarks. JEL Classification: G11, G23
Economic Analysis
The aim of this study is to provide insight into the portfolios constructed out of sector mutual funds, based on value and growth investment styles. Moreover, this study does not exclusively consider the returns, but it looks beyond them by incorporating the holdings data into portfolio performance attribution. We use two different sector mutual funds across the US sectors, over the observed decade. The findings show that smart money was not able to produce the value on the cumulative basis. We show that growth style was favourable over the observed decade. In addition, by implementing the growth style based on Shiller price-to-earnings in the portfolio construction and assigning sector weights the tested portfolio offset partially and fully the negative effect by managers’ stock selection. Overall, the holdings-based relative portfolios attribution in relation to appropriate benchmarks gave additional insight into dynamics of the alpha creation and the loss of alpha. Brinson-Fackle...
Value versus growth stocks: A reversal
2021
Over the last ten years, U.S. growth stocks have outperformed U.S. value stocks by an average 7.8% per year.1 Such eye-watering underperformance of value has been atypical historically. As Figure 1 illustrates, the value factor as defined by Fama-French has on average outperformed growth over ten-year time horizons going back to 1936. This has led some to question the existence of the value premium. While we believe that the rationale for the premium— which is supported by a deep body of academic literature2—is sound, the depth and persistence of value’s recent underperformance is striking.
Performance of Value and Growth Stocks in the Aftermath of the Global Financial Crisis
Business Systems Research Journal
Background: Due to strong empirical evidence from different markets, existence of value premium became a financial theory standpoint. Although previous studies found that value stocks beat growth stocks in bearish and bullish markets, during the GFC, value stocks underperformed growth stocks. Objectives: This paper aims to examine the performance of value and growth stock portfolios after the GFC. Subjects of our analysis are constituent companies of the DJIA index, out of which portfolios of large-cap value and growth stocks have been constructed and evaluated. Methods/Approach: We measure the performance of stock portfolios, which are created based on the naïve diversification rule and random weighting approach. Statistical testing includes Levene’s homogeneity test, the Mann-Whitney U test, T-test, and the One-Sample T-test. Results: Growth stock portfolios outperform value stock portfolios after the GFC. The dominance of growth stock portfolios compared to value stock portfolios...
Value versus growth stocks and earnings growth in style investing strategies in Euro-markets
Journal of Asset Management, 2008
While recent studies have concentrated on why value stocks outperform growth stocks, this paper investigates whether these strategies are sensitive to earnings growth level. Empirical tests are conducted based on returns strategy and asset pricing analysis. Controlling for Fama and French (1993) risk factors, empirical results provide evidence that a value strategy with a high earnings growth rate, that is, undervalued value stocks, outperformed both value and growth strategies in the Euro zone from 1988 to 2003. Empirical findings suggest that earnings growth has a valuable effect in determining the performance of value-versus growth-stocks portfolios. Further investigations confirm the positive effect of earnings-per-share momentum in undervalued value stocks, whereas there is no significant effect in overvalued growth stocks.
The testing of common risk factors toward portfolio’s excess return
Jurnal Manajemen Maranatha
This study aims to examine common risk factors' effects in the Fama and French Five-Factor Model plus Momentum Factor on The Bisnis-27 Index Stocks component during the 2016-2020 period. This research's common risk factors include market risk premium, firm size, book-to-market equity ratio, profitability, investment, and momentum. A quantitative approach will be used in this study by using multiple linear regression. The regression in this study was generated by the common effects model method. This study reveals that a portfolio's excess return is simultaneously affected by common risk factors that are in place this study. The findings in this study show that market risk premium, book-to-market ratio, company size, and momentum positively affect portfolios' excess returns. The greater the market risk premium, the smaller the size of the company, the larger the book-to-market ratio, and the stock's past performance, as reflected by the momentum, has implications ...
Value and Growth Investing: Review and Update
A great deal of academic empirical research has been published on value arid growth investing. We review and update this literature, discuss the various explanations for the performance of value versus growth stocks, review the empirical research on the alternative explanations, and provide some new results based on an updated and expanded sample. The evidence suggests that, even after taking into account the experience of the late 1990s, value investing generates superior returns. Common measures of risk do not support the argument that the return differential is a result of the higher riskiness of value stocks. Instead, behavioral considerations and the agency costs of delegated investment management lie at the root of the value-growth spread.