Value versus Growth Investing: Why Do Different Investors Have Different Styles?
University of Miami - Department of Finance
University of Washington - Michael G. Foster School of Business
China Europe International Business School
January 13, 2015
Journal of Financial Economics (JFE), Forthcoming
We find that several factors explain an individual investor's style, i.e., the value versus growth orientation of the investor's stock portfolio. First, we find that an investor's style has a biological basis and is partially ingrained in an investor from birth. Second, we show that an investor's hedging demands as well as behavioral biases explain investment style. Finally, an investor's style is explained by life course theory in that experiences, both earlier and later in life, are related to investment style. Investors with adverse macroeconomic experiences (e.g., growing up during the Great Depression or entering the labor market during an economic recession) or who grow up in a lower socioeconomic status rearing environment have a stronger value orientation several decades later. Our research contributes a new perspective to the long-standing value and growth debate in finance.
Number of Pages in PDF File: 41
Keywords: Investment behavior, Portfolio choice, Value investing, Growth investing
JEL Classification: D10; D31; G11
Date posted: November 7, 2013 ; Last revised: January 13, 2015
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