Value versus Growth Investing: Why Do Different Investors Have Different Styles?

41 Pages Posted: 7 Nov 2013 Last revised: 1 Sep 2016

Henrik Cronqvist

University of Miami - Department of Finance

Stephan Siegel

University of Washington - Michael G. Foster School of Business

Frank Yu

China Europe International Business School

Date Written: January 13, 2015

Abstract

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.

Keywords: Investment behavior, Portfolio choice, Value investing, Growth investing

JEL Classification: D10; D31; G11

Suggested Citation

Cronqvist, Henrik and Siegel, Stephan and Yu, Frank, Value versus Growth Investing: Why Do Different Investors Have Different Styles? (January 13, 2015). Journal of Financial Economics, Volume 117, Issue 2, August 2015, Pages 333–349. Available at SSRN: https://ssrn.com/abstract=2351123 or http://dx.doi.org/10.2139/ssrn.2351123

Henrik Cronqvist (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
(305) 515-5898 (Phone)

HOME PAGE: http://sites.google.com/site/henrikcronqvist/

Stephan Siegel

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

HOME PAGE: http://faculty.washington.edu/ss1110/

Fang Yu

China Europe International Business School ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

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