Investigating value and growth : what labels hide ?
AbstractValue and growth investment styles are a concept which has gained extreme popularity over the past two decades, probably due to its practical efficiency and relative simplicity. We study the mechanics of different factors' impact on excess returns in a multivariate setting. We use a panel of stock returns and accounting data from 1979 to 2007 for the companies listed on NYSE without survivor bias for clustering, regression analysis and constructing style based portfolios. Our findings suggest that value and growth labels often hide important heterogeneity of the underlying sources of risks. Many variables, conventionally used for style definitions, cannot be used jointly, because they affect returns in opposite directions. A simple truth that more variables does not necessarily mean better model nicely summaries our results. We advocate a more flexible approach to analyzing accounting-based factors of outperformance treating them separately before or instead of aggregating.
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Bibliographic InfoPaper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number b07066.
Length: 25 pages
Date of creation: Nov 2007
Date of revision:
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Style analysis; value puzzle; pricing anomalies; equity.;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-01 (All new papers)
- NEP-MAC-2007-12-01 (Macroeconomics)
- NEP-RMG-2007-12-01 (Risk Management)
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