Searching for Inner Peace with Value Factors
Risk & Reward, 2020, 4th issue, pp. 14-19
6 Pages Posted: 6 Feb 2021
Date Written: September 10, 2020
Value factors have always been an essential part of quantitative investing processes. We show that the deterioration in performance of value stocks, as defined by high book-to-price (B/P) ratios, comes as no surprise given their relatively poor fundamentals as well as slower mean reversion of profitability. The opposite has been observed for low B/P “glamour” stocks. Value defined by high earnings yield (E/P) has also suffered from deteriorating performance despite being fundamentally different from value characterized by a high B/P.
Keywords: value investing, profitability, mean reversion, valuation, growth
JEL Classification: G11, G12, G14, M41
Suggested Citation: Suggested Citation