Value and Growth Investing: Review and Update

Posted: 13 Feb 2004

See all articles by Louis K.C. Chan

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Abstract

A great deal of academic empirical research has been published on value and growth investing. We review and update this literature, discuss the various explanations for the performance of value versus growth stocks, review the empirical research on the alternative explanations, and provide some new results based on an updated and expanded sample. The evidence suggests that, even after taking into account the experience of the late 1990s, value investing generates superior returns. Common measures of risk do not support the argument that the return differential is a result of the higher riskiness of value stocks. Instead, behavioral considerations and the agency costs of delegated investment management lie at the root of the value-growth spread.

Keywords: Portfolio Management, Equity Strategies, Investment Theory, Behavioral Finance

Suggested Citation

Chan, Louis K.C. and Lakonishok, Josef, Value and Growth Investing: Review and Update. Financial Analysts Journal, Vol. 60, No. 1, pp. 71-86, January/February 2004. Available at SSRN: https://ssrn.com/abstract=500022

Louis K.C. Chan (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-6391 (Phone)
217-244-3102 (Fax)

Josef Lakonishok

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-7185 (Phone)
217-244-3102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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