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Deep Value

59 Pages Posted: 28 Nov 2017 Last revised: 10 Dec 2017

Clifford S. Asness

AQR Capital Management, LLC

John M. Liew

AQR Capital Management, LLC

Lasse Heje Pedersen

AQR Capital Management, LLC; Copenhagen Business School - Department of Finance; New York University (NYU); Centre for Economic Policy Research (CEPR)

Ashwin K Thapar

AQR Capital Management, LLC

Date Written: December 1, 2017

Abstract

We define “deep value” as episodes where the valuation spread between cheap and expensive securities is wide relative to its history. Examining deep value across global individual equities, equity index futures, currencies, and global bonds provides new evidence on competing theories for the value premium.

Following these episodes, the value strategy has:

(1) high average returns;

(2) low market betas, but high betas to a global value factor;

(3) deteriorating fundamentals;

(4) negative news sentiment;

(5) selling pressure;

(6) increased limits to arbitrage; and

(7) increased arbitrage activity.

Lastly, we find that deep value episodes tend to cluster and a deep value trading strategy generates excess returns not explained by traditional risk factors.

Keywords: value investing, market efficiency, bubbles, behavioral finance, over-reaction, demand pressure, arbitrage, noise

JEL Classification: G02, G11, G12, G14, G15

Suggested Citation

Asness, Clifford S. and Liew, John M. and Pedersen, Lasse Heje and Thapar, Ashwin K, Deep Value (December 1, 2017). Available at SSRN: https://ssrn.com/abstract=3076181

Cliff Asness

AQR Capital Management, LLC ( email )

Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States
203-742-3601 (Phone)
203-742-3101 (Fax)

HOME PAGE: http://www.aqrcapital.com

John Liew

AQR Capital Management, LLC ( email )

2 Greenwich Plaza
3rd floor
Greenwich, CT 06830
United States
(203) 742-3604 (Phone)
(203) 742-3104 (Fax)

HOME PAGE: http://www.aqr.com

Lasse Pedersen (Contact Author)

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg, DK-2000
Denmark

New York University (NYU) ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Ashwin Thapar

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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