Clairvoyant Value and the Growth/Value Cycle

Posted: 6 Aug 2009 Last revised: 29 Dec 2016

See all articles by Robert D. Arnott

Robert D. Arnott

Research Affiliates, LLC

Feifei Li

Research Affiliates, LLC

Katrina F. Sherrerd

Research Affiliates LLC

Date Written: April 8, 2009

Abstract

The concept of Clairvoyant Value, introduced by the authors in the Spring 2009 issue of this journal, facilitates exploration of how the market prices future growth expectations across securities and over time. The authors find both concurrent and predictive links between the intertemporal change in the Valuation Dispersion — the relative valuation gap between growth and value stocks — and the observed growth-value “cycle” in the market. On average, the dispersion is twice as wide as subsequent financial results would justify; that is, the market historically has overpaid for growth. The authors also show that a wide dispersion in valuation multiples has tended to precede periods of exceptional performance by value stocks relative to growth stocks. The total wealth effect of investing in a Clairvoyant Value portfolio provides value for a company’s future business prospects, but perhaps a bit less so than might be surmised.

Keywords: Clairvoyant Value, Value Effect, Growth/Value Cycle

JEL Classification: G12, G14

Suggested Citation

Arnott, Robert D. and Li, Feifei and Sherrerd, Katrina F., Clairvoyant Value and the Growth/Value Cycle (April 8, 2009). Journal of Portfolio Management, Vol. 35, No. 4, 2009, Available at SSRN: https://ssrn.com/abstract=1444654 or http://dx.doi.org/10.2139/ssrn.1444654

Robert D. Arnott (Contact Author)

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Feifei Li

Research Affiliates, LLC ( email )

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Katrina F. Sherrerd

Research Affiliates LLC ( email )

620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8728 (Phone)
949-325-8928 (Fax)

HOME PAGE: http://researchaffiliates.com/index.htm

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