Explaining the Demise of Value Investing

25 Pages Posted: 28 Aug 2019 Last revised: 4 Sep 2019

See all articles by Baruch Lev

Baruch Lev

New York University - Stern School of Business

Anup Srivastava

University of Calgary - Haskayne School of Business

Date Written: August 25, 2019

Abstract

The business press claims that the long-standing and highly popular value investing strategy—investing in low-valued stocks and selling short high-valued equities—lost its edge since 2007. The reasons for this putative sudden demise of value investing elude investors and academics, making it a challenge to assess the likelihood of the return of value investing to its days of glory. Based on extensive data analysis we show that the strategy has, in fact, been unprofitable for almost 30 years, barring a brief resurrection following dotcom bust. We identify two major reasons for the demise of value: (1) accounting deficiencies causing systematic misidentification of value, and particularly of glamour (growth) stocks, and (2) fundamental economic developments which slowed down significantly the reshuffling of value and glamour stocks which drove the erstwhile gains from the value strategy. We end up by speculating on the likelihood of the resurgence of value investing, which seems low.

Keywords: Value investing, Growth investing, Hedged portfolio, Intangibles, R&D, Market to book ratio, Credit crisis

JEL Classification: E32, G11, M41

Suggested Citation

Lev, Baruch Itamar and Srivastava, Anup, Explaining the Demise of Value Investing (August 25, 2019). Available at SSRN: https://ssrn.com/abstract=3442539 or http://dx.doi.org/10.2139/ssrn.3442539

Baruch Itamar Lev (Contact Author)

New York University - Stern School of Business ( email )

40 West 4th Street, Suite 400
New York, NY 10012
United States
212-998-0028 (Phone)
212-995-4001 (Fax)

HOME PAGE: http://www.baruch-lev.com

Anup Srivastava

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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