Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns

Posted: 25 Jan 2010

See all articles by John Y. Campbell

John Y. Campbell

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Christopher Polk

London School of Economics

Tuomo Vuolteenaho

Arrowstreet Capital, LP; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2009

Abstract

The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices, driven by shocks to market discount rates, while the cash flows of value stocks are particularly sensitive to permanent movements, driven by shocks to aggregate cash flows. Thus, the high betas of growth (value) stocks with the market's discount-rate (cash-flow) shocks are determined by the cash-flow fundamentals of growth and value companies. Growth stocks are not merely “glamour stocks” whose systematic risks are purely driven by investor sentiment. More generally, the systematic risks of individual stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals.

Keywords: G12, G14, N22

Suggested Citation

Campbell, John Y. and Polk, Christopher and Vuolteenaho, Tuomo, Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns (May 2009). The Review of Financial Studies, Vol. 23, Issue 1, pp. 305-344, 2009, Available at SSRN: https://ssrn.com/abstract=1540997 or http://dx.doi.org/hhp029

John Y. Campbell (Contact Author)

Harvard University - Department of Economics ( email )

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Christopher Polk

London School of Economics ( email )

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Tuomo Vuolteenaho

Arrowstreet Capital, LP ( email )

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National Bureau of Economic Research (NBER)

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