The Role of Expectations in Value and Glamour Stock Returns
Journal of Behavioral Finance, 2011
22 Pages Posted: 10 Aug 2011 Last revised: 17 Jul 2015
Date Written: June 1, 2011
When value and glamour stocks missed earnings expectation targets, what happened to their stock prices over the following year? Prices of value stocks increased when earnings expectations were beat and missed - and even when business fundamentals deteriorated. Glamour stocks behaved more predictably, with prices rising and falling after beats and misses, respectively.
In this report, the Brandes Institute investigates the role that expectations played in investors’ assessment of value and glamour stocks to better understand the sequence of events that allowed value stocks to deliver superior long-term returns. The evidence suggests an undercurrent of behavioral error, counters assertions published by select scholars, and provides fresh evidence explaining why value investing historically has been a successful long-term strategy.
Keywords: Brandes, Brandes Institute, value investing, value vs glamour, earnings expectations
JEL Classification: G10, G11, G12, G14, G15
Suggested Citation: Suggested Citation