Reports of Value’s Death May Be Greatly Exaggerated

43 Pages Posted: 2 Dec 2019 Last revised: 3 Jun 2020

See all articles by Robert D. Arnott

Robert D. Arnott

Research Affiliates, LLC

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Vitali Kalesnik

Research Affiliates LLC

Juhani T. Linnainmaa

Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

Date Written: June 2, 2020

Abstract

Value investing has underperformed growth investing for over 13 years. We examine several narratives that suggest why the long-term efficacy of the value factor may be dead. Using a bootstrap analysis, we show the likelihood of observing such a large drawdown, based on data from before the drawdown, is about 1 in 20. We decompose the value–growth performance into three components: migration of securities into and out of the growth and value portfolios, differences in profitability and growth rates, and changes in the valuation spread between the growth and value portfolios. The third component explains the drawdown: value is unusually cheap relative to growth. The valuation falls from the 23rd percentile in 2007 to the 100th (bottom) percentile of the historical distribution as of March 2020.

First posted to SSRN: November 17, 2019.

Keywords: Value investing, value factor, growth investing, value spread, revaluation, migration, profitability, HML, 3-factor model, iHML, intangibles, book value, intrinsic value, financial accounting, behavioral finance, crowding, data mining, structural change, drawdown

JEL Classification: G11, G12, G14, G23, G40, M40

Suggested Citation

Arnott, Robert D. and Harvey, Campbell R. and Kalesnik, Vitali and Linnainmaa, Juhani T., Reports of Value’s Death May Be Greatly Exaggerated (June 2, 2020). Available at SSRN: https://ssrn.com/abstract=3488748 or http://dx.doi.org/10.2139/ssrn.3488748

Robert D. Arnott

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Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

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National Bureau of Economic Research (NBER)

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Vitali Kalesnik

Research Affiliates LLC ( email )

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949-325-8917 (Fax)

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Juhani T. Linnainmaa

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

HOME PAGE: http://www.tuck.dartmouth.edu/faculty/faculty-directory/juhani-linnainmaa

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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