Abstract

http://ssrn.com/abstract=1071124
 
 

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The Anatomy of Value and Growth Stock Returns


Eugene F. Fama


University of Chicago - Finance

Kenneth R. French


Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)


Financial Analysts Journal, Vol. 63, No. 6, 2007

Abstract:     
Average returns on value and growth portfolios are broken into dividends and three sources of capital gain: (1) growth in book equity, primarily from earnings retention, (2) convergence in price-to-book ratios (P/Bs) from mean reversion in profitability and expected returns, and (3) upward drift in P/B during 1927-2006. The capital gains of value stocks trace mostly to convergence: P/B rises as some value companies become more profitable and their stocks move to lower-expected-return groups. Growth in book equity is trivial to negative for value portfolios but is a large positive factor in the capital gains of growth stocks. For growth stocks, convergence is negative: P/B falls because growth companies do not always remain highly profitable with low expected stock returns. Relative to convergence, drift is a minor factor in average returns.

Keywords: Portfolio Management: Equity Strategies

JEL Classification: G12, G35

Accepted Paper Series





Not Available For Download

Date posted: December 14, 2007  

Suggested Citation

Fama, Eugene F. and French, Kenneth R., The Anatomy of Value and Growth Stock Returns. Financial Analysts Journal, Vol. 63, No. 6, 2007. Available at SSRN: http://ssrn.com/abstract=1071124

Contact Information

Eugene F. Fama (Contact Author)
University of Chicago - Finance ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7282 (Phone)
773-702-9937 (Fax)
Kenneth R. French
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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