Value Versus Growth: Stochastic Dominance Criteria
30 Pages Posted: 2 Sep 2005
Date Written: September 2006
In this paper, we investigate the value versus growth strategies from the perspective of stochastic dominance. Using half century US data on value and growth stocks, we find strong evidence that value stocks stochastically dominate growth stocks in all three-order of stochastic dominance relations over the full sample period as well as during economic boom (good) periods. However, there is no significant stochastic dominance relation between value and growth stocks during recession (bad) periods, which is inconsistent with the risk-based predictions but is better explained by behavioral models.
Keywords: Stochastic Dominance, Value Stocks, Growth Stocks, Value Premium
JEL Classification: D81, G11, G30
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